The Cabinet Committee on Economic Affairs (CCEA), headed by Prime Minister Narendra Modi has given its approval for the payment of the differential royalty to Arunachal Pradesh, Assam and Gujarat in respect of 28 discovered fields, which were awarded by the government to different companies during the years 1994-95, 2001 and 2004. Differential royalty refers to the difference between the rates of royalty as per provisions contained in respective Production Sharing Contracts (PSCs) and the notified rate of royalty on crude oil production.
The expected expenditure for the year 2015-16 has been estimated at Rs 56 crore comprising of Rs 30 crore for Arunachal Pradesh and Rs 26 crore for Gujarat. Though, Assam has been included in the scheme, it would not get any benefit this fiscal as there is no producing oil field in the state. The calculation has been arrived by assuming average crude oil price of $50 per barrel and foreign exchange rate of Rs 60 to a dollar.
Presently, the differential in royalty is paid to the states by the Oil Industry Development Board (OIDB) based on the Oilfields (Regulation & Development) Act, 1948 and Petroleum & Natural Gas Rules, 1959. OIDB also needs funds because investments for the strategic crude oil reserves have depleted its cash to Rs.8, 000 crore. OIDB funds are supposed to be utilized for financing development activities of the sector. In order to ensure proper utilization of OIDB fund from the year 2015-16 onwards the payment shall be through budgetary allocation instead of through OIDB fund.
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