ONGC stock falls after Gujarat HC royalty payment order

The stock of Oil and Natural Gas Corp Ltd (ONGC) was trading lower in the afternoon trade amid reports that the Gujarat High Court has directed the firm to pay dues worth Rs 5,000 crore to Rs 6,000 crore to the state government towards differences in royalty of crude the PSU has extracted since 2008.

At 2:00 pm, the ONGC stock was trading above 1 per cent lower to  Rs 295.25.  Earlier, the stock fell to Rs 287 level  or more than 2 per cent  in intra-day trade.

A division bench headed by Chief Justice Bhaskar Bhattacharya and Justice JB Pardiwala on Saturday directed ONGC to pay differences in royalty of crude within two months and also pay royalty, henceforth, to state government at market rate.

According to the Oil Field Act, ONGC is required to pay 20 per cent royalty of the market value of crude oil it extracts from oil blocks to the state government.

ONGC used to pay such royalty to the Gujarat government but, in 2004, the Union government asked it to provide crude to Indian Oil Corporation (IOC) as burden-sharing mechanism, at a discounted rate because IOC was offering subsidies on diesel, kerosene and Liquefied Petroleum Gas (LPG) to consumers, resulting in huge losses to the latter.

Since ONGC started providing crude to IOC at a discounted rate, it started paying royalty to the state government at post-discount rate, resulting in drastic reduction in royalty to Gujarat.

The state also complained to the Centre in this regard.

-With agency inputs