GUWAHATI, Feb 5 ? The Central Government is collecting around Rs 850 crore annually from the oil fields of Assam as Oil Development Cess, at the rate of Rs 1,800 per MT. But instead of investing funds from this cess for exploration and higher level of production in the State, the Central Government is diverting the funds to the Consolidated Fund of India. This is one of the submissions made by the State Government in its memorandum to the Twelfth Finance Commission.
The memorandum alleged that the amount of fund so diverted since 1974 would amount to thousands of crores of rupees. Oil exploration in the State started in 1866, just seven years after the precious mineral was struck in the USA for the first time on the earth. But no major petrochemical industry with downstream potential has come up in the State so far, nor is there sufficient investment made to develop the oil fields in the State to increase their productivity.
All these resulted in the decline in crude oil production from a peak of 5.6 MT in 1989-90 to 4.7 MT at present, said the memorandum, reminding the Finance Commission the recommendation of the 1995 study report of the Government of India on hydrocarbon perspective for 2010. The study report recommended that a special incentive package could be developed specially for the north-eastern States as it was anticipated that accelerated efforts in that areas could be highly rewarding.
The memorandum said that it was perhaps not unreasonable for the people and the Government of the State to expect reasonable returns from the non-renewable natural resources of the State. ?Had adequate investments been made on state-of-the-art technology for exploration and production and also for setting up of hydrocarbon-based industries with downstream potential in the State, the State economy would have grown at a much faster rate and the State Government could also have earned a much larger amount of royalty from higher level of production.
With higher level of oil and gas production, the proposed Assam Gas Cracker Project would also not have to be on the hold for so long due to uncertainty of feedstock supply. Higher domestic production would also have saved the country valuable foreign exchange to that extent against import of oil,? the memorandum said.
It pleaded that the Government of India should stop diverting the Oil Cess to its Consolidated Fund. ?The Cess must be used for the purpose which it is collected, i.e., development of the indigenous oil industry?, it said. It also argued for halving the rate of the Cess and giving the balance half to the oil producing States as additional royalty. As for the Oil Cess already collected and appropriated by the Union Government in the past, the memorandum suggested that 50 per cent of the amount should be deployed for development of oil industry and the remaining 50 per cent should be given back to the concerned States.
Making its observations on the Presidential order on November 1, 2002 to the Twelfth Finance Commission asking it to make recommendations whether non-tax income of profit on petroleum arising out of contractual provisions should be shared with the oil producing States and if so then to what extent, the State Government said in the memorandum that the State Government had the propriety right over the petroleum reserves of the State.
?It is imperative that the State gets adequate returns from this non-renewable resource. When we consented to the New Exploration Licensing Policy (NELP), we clearly stated that the concerned State Government should get a share of the profit. However, as per the existing provision of the production-sharing contract, the non-tax income of Profit Petroleum arising out of production of petroleum by the contractors is to be shared between the Union Government and the contractors. The State Government has no share in it.
?On the other hand, under the NELP the rate of royalty on crude oil has been fixed at 12.5 per cent of the well-head value of crude oil. This is substantially lower than the rate of 20 per cent as per the provision of Section 6 A(40 of the Oil Fields (Regulation and Development) Act, 1948.
?To facilitate oil exploration and development of the new oil fields, the State Government has to incur substantial expenditure in terms of development of infrastructure and provision of other essential public services. There is also an environmental dimension. The State Government has to incur expenditure to mitigate the environmental cost?, it said and pleaded that the non-tax income of Profit Petroleum to the Union Government should be shared with the States from where the mineral oils are produced with a 50:50 ratio.