The Central government is working on a package of measures to help domestic oil producers pull through the price crash and the uncertainty in the global oil market.
A relief package has become crucial for survival of companies such as the Oil and Natural Gas Corporation (ONGC) as the price crash since March 2020 has turned oil production into a loss-making proposition.
ONGC is also losing Rs 6,000 crore annually on gas due to a pricing formula based on benchmarks in surplus markets. While it costs USD 3.75 to produce each unit, the current price is USD 2.39. ONGC pays 10-12.5 percent royalty to the Centre on oil produced from offshore areas. State governments charge 20 percent royalty on the price of oil produced from onland fields.
Then there is 20 percent ad-valorem oil industry development (OID) cess on the price that producers get. OID cess has increased from USD three to USD 13 over the years and is causing financial stress to current and new projects.
The cess is levied as excise duty under the Oil Industries (Development) Act of 1974. It is being levied on crude oil from nominated blocks and pre-NELP exploratory blocks only. The OID cess was raised from Rs 2,500 per tonne to Rs 4,500 per tonne in March 2012. The price of the Indian basket of crude oil stood at around USD 110 per barrel then.