Mining mogul Anil Agarwal led Vedanta Ltd has deducted approximately $91 million from the share of profit owed to the government from its oil and gas fields in protest against the nine-month-old windfall tax to cover the additional tax outlay, news agency PTI reported.
India first imposed windfall gains tax on July 1 last year. However, the producers saw the levy of Special Additional Excise Duty (SAED) on locally produced crude oil as a violation of contract.
Rs 23,250 per tonne windfall profit tax on domestic crude production was levied. Windfall profit taxes are reviewed on a fortnightly basis by factoring in international oil prices.
This comes on top of the 10–20 per cent royalty on the price of oil and gas realised and the 20 per cent oil cess. In addition, the government is also entitled to a predetermined portion of the profits that remain after deducting costs from the proceeds from the sale of oil and gas.
Vedanta recently informed the ministry of petroleum and natural gas that it has already deducted $85.35 million for SAED paid on its prolific Rajasthan block, RJ-ON-90/1, and another $5.50 million for block CB-OS/2 in Cambay basin.
This was being done with the intention of restoring the financial benefits specified in the agreements that it works under, according to the correspondence, the report said.
In its argument, Vedanta said that the agreements, known as production sharing contracts, or PSCs, give the contracting parties financial security. The PSC states that the parties shall promptly consult and make necessary revisions and adjustments to the contract in order to maintain such expected economic benefits to each of them in the event that a change in law, rule, or regulation results in an adverse change to the expected economic benefits to any of the parties.
However, the ministry of petroleum and natural gas termed the “unilateral” deduction as “wrongful” and directed the company to pay the rest of the profit along with interest within 7 days. Vedanta did not comply with the direction.
The ministry believed that arbitration was the PSC’s provision for resolving disputes, and Vedanta was considering it. Arbitrations, however, are expensive and time-consuming, PTI quoted sources as saying.
Also, they pose a reputational risk to the government, which must be taken into account, particularly in the context of the promotion of business-friendliness.
As per the sources quoted by PTI, the ministry asked the finance ministry to review the SAED and increase the base price for such levy to $80 per barrel from current $74-75.
The government had also levied duties on the export of petrol, diesel and jet fuel (ATF) on July 1. Following further fortnightly inspections, export taxes on gasoline and ATF were removed. Several crude oil producers, including the state-owned Oil and Natural Gas Corporation (ONGC), Oil India Ltd. (OIL), and the private sector Vedanta Ltd., have previously requested a review of the levy because it was adversely affecting their investment plans.
Also Read: Windfall gains tax on domestic crude oil production cut to Rs 3,500 per tonne