*Q: Do you think it may happen after all, because there is some talk or
demand from certain political parties about this? Do you think there is a
possibility that such a thing might actually be pushed through?*
A: It would be difficult to predict what the government would do, especially
when the basic structure of the government is likely to change in the next
week or so. So one can't predict that. Windfall gains by definition; is
profit that comes from unfrozen situations.
Say the budget for buying crude is at USD 80/bbl and crude actually goes at
USD 120/bbl, the producer would make much more money than what he budgeted,
that would be a windfall gain situation. If we take that issue then it's not
only the crude producers but even the finance ministry has been the biggest
beneficiary of this windfall gain out of the recent rise of crude prices
over the last 2-3 years. If someone is making an incremental profit or super
profits under the existing policy of the government. I don't think you can
call that, a windfall gain. Export oriented unit is the clear policy by the
government of India to export. Whether the government wants to encourage
leather goods exports or petroleum exports is for the government to decide.
So there is an essential difference on what a windfall gain is and what an
incremental profitability is by using an existing policy of the government.
*Q: So you are saying that by the way of law or policy, it is not possible
that the windfall tax goes through and just explain the benefit of the
viewers. What is the current profitability and production ratio sharing
between the government and the private companies because even that seems
quite well in favour of the government?*
A: On production sharing, there are a number of different regimes in India.
The contracts that were signed in the 80s and 90s were different kind of
contracts, where the government gave equity in certain oil and gas fields.
The exploration blocks or production blocks are on a one time signature
bonus payment.
This is quite different from the NELP regime. The contracts were signed
before the NELP. For each round of those contracts, the regimes were
different. In none of these contracts was there a provision for profit
sharing with the government except for corporate income
tax<http://www.moneycontrol.com/india/news/business/govt-may-levy-additio...>.
The license holders pay royalty and cess.
*Q: Have you given some thought to how this will actually be made to work in
practical terms if they decide in a principal that they want to levy some
kind of a cess on the private companies? Do you think it will be an ad hoc
number? Would it be a percentage of the losses of oil companies, which will
be put on these private companies? Have you worked on what the possible
formula for extracting that cess if indeed they were to implement it would
be? *
A: There would be many voices of scaling the cat. The cess, which is not
levied on ONGC, is a specific tax that has gone up over the years from Rs
300 to Rs 2,500 per ton. The private producers today, under the earlier
rouse actually, had made a one-time payment to the government and they don't
make any further payments. So the profit literally goes to them and those
contracts are not as water tight as the NELP contracts are.
What we have seen is that the government has actually taken steps, which
allegedly violates the sanctity of the NELP contracts itself. So there
should be no issue of the government deciding to put a cess whether by way
of incremental income tax or any other means that could be done. Those
contracts will provide for these. It's an
*Q: Are you worried about Oil and Natural
Gas<http://www.moneycontrol.com/india/news/business/govt-may-levy-additio...>Corporation
Ltd (ONGC)? People were positively surprised with the kind of
subsidy burden they had to bear. It was far lower than what was estimated.
If the calls get more shrilled for getting a bit more money out of these
downstream companies, do you think it is ONGC that might have to bear the
brunt of it?*
A: That is something the ONGC management has to argue out with the
government. We are looking at the subsidies and cross subsidization on very
ad-hog basis. If we are going to reckon incremental revenue by windfall tax
just for an argument; then this windfall tax should go as an income to a
stabilization fund and the stabilization fund should be used to provide the
subsidy to the actual consumer who needs the subsidy.
If we do not balance income and expenditure like we used to do in the OCC
(Oil Coordination Committee)* *days when it was administered pricing
officially and legally, windfall tax would be levied even if it has it goes
into the concentrated fund of India and that would be the end of it. Then it
would continue with the same game of charging fertilizer subsidy and oil
subsidy on different company budgets.
So ideally we should have a structure. We have proposed these issues and
have discussed that there has to be certain streams, which should come into
a stabilization fund and the subsidies should flow out of the stabilization
fund with the government several times the last three-four years. That would
be a maintainable structure. Otherwise they charge a windfall tax and get
some revenue that goes into some other budgetary item, which no one ever
knows; the government cannot keep doing this.
*Q: What are the pedals of changing the policy for a sector like oil
midstream to extract some money from private companies? Do you think this
kind of midstream policy changes might come back to haunt the government at
a later stage,?*
A: There is no policy change. We are talking about specific contracts. There
are two groups of contracts, one is Pre-NELP (New Exploration Licensing
Policy), which was signed before 2000 and the other NELP contracts. The
Pre-NELP contracts have different versions and different editions, but those
contracts are just commercial arguments and they could be used for
government to charge internal* *revenue. Those equities were given out for
prices, which could have been or should have been much higher. NELP is where
the government committed internationally on a stable fiscal regime and that
has been marketed on seven rounds of NELP and three rounds of CBM (coal bed
methane).
people have come in and taken a contract, it is not fair. We need to make a
clear distinction between government intervention on Pre-NELP contracts and
government intervention on NELP contracts.
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