Cairn seeks review of Rajasthan crude oil pricing

Cairn India wants the Centre to review the Rajasthan oil fields price formula. Rajasthan oil is sold at a discount to Brent due to the quality of crude.

Hit by the recent fall in international crude oil prices, Cairn and its joint venture partner in Rajasthan, ONGC, feel discounted realisation impacts the producers as well as the government.

Taking advantage of this are the private refiners like Reliance Industries and Essar.

Over 249 million barrels of oil equivalent (oil plus some gas) has already been sold for the past five years at a discounted price, which has always been 10-15 per cent below Brent.

In fiscal 2014-15, Brent had averaged at $85.43 a barrel.

Officials associated with the joint venture said Rajasthan oil accounts for 25 per cent of India’s domestic crude production.

Every dollar that is discounted on this crude results in a loss of about 70-80 cents to the exchequer (the Centre as well as the State, in the form of royalty and taxes). “It is, therefore, important for the government to have a round of deliberations with buyers, and in line with the Rajasthan production sharing contract, which states that the crude is eligible to get an international price,” an official said.

Though India allows pricing freedom to domestic crude oil producers, Cairn and ONGC had to get a formula approved, as the buyers were initially government refiners. When the PSU refiners were unable to take advantage of Rajasthan oil, Cairn was permitted to sell it to private domestic refiners, which made it a buyers’ market (using the price formula derived for PSUs), the official added.

Today, government nominee IndianOil is able to take only 25 per cent of the total Rajasthan production, the remaining being sold to Reliance and Essar.

Another official associated with the joint venture said Rajasthan crude is closer to Indonesian Duri or Chinese crude Daqing, some of the regional crude grades.

In September 2009, the government had designated refineries Indian Oil Corporation Ltd, Mangalore Refinery and Petrochemicals Ltd and Hindustan Petroleum Corporation to purchase Rajasthan crude at a pricing formula.

Interestingly, this formula was to be treated as provisional till examined and approved by the Centre. “Till date, the same formula continues,” another official pointed out.