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Cairn India may Have to Pay Govt 10% Extra Profit

Cairn India will have to give the government an additional 10% share in profit petroleum after the renewal of its contract for Rajasthan oil and gas field, according to a proposed policy on contract renewals likely to be announced in a month.

The company, controlled by billionaire Anil Agarwal, has sought to extend the contract to operate the oil and gas block in Barmer by 10 years after the initial 20-year agreement runs out in 2020.

The government is unlikely to decide on Cairn India's extension request on a standalone basis and is readying a policy that will guide the renewal of blocks such as the one operated by the company, people aware of the matter said. The oil ministry will shortly take the proposal to the cabinet for approval, they said.

The proposed policy will cover 10 Pre-NELP ‘exploration' blocks, or the blocks that were auctioned before the New Exploration Licensing Policy came into being. It will be more or less a copy of the policy announced last year for the extension of the so-called Pre-NELP ‘discovered’ fields, or 28 small and medium-sized fields discovered by Oil and Natural Gas Corporation and Oil India Ltd, and awarded to private joint ventures between 1994 and 1998. The most important provision in the policy unveiled in March is that the government's share of profit petroleum during the extended period of contract shall be 10% higher than the first contract period.

Cairn India has been lobbying the government hard to extend its contract on the same terms as now but the government wants a larger share of profit during the extended period, leading to protracted negotiations.

This prompted the company to approach the Delhi High Court to force the government to decide on an early renewal. The court has asked the government to decide on the matter of extension quickly without waiting for a policy for contracts renewals for other fields. The matter has been in court for about a year. The policy that the government announced last year also provides for the contractors to pay royalty and cess at prevailing rates and not at concessional rates stipulated in the initial contracts. Under the policy, the renewal of contracts will be considered for 10 years or the economic life of the field, whichever is earlier.

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