Vedanta clips $91 mn from Centre’s gains to make up for tax paid

NEW DELHI: In signs of protests against the 9-month-old windfall tax, mining mogul Anil Agarwal’s Vedanta Ltd has withheld about $91 million from the share of profit due to government from its oil and gas fields, to make up for the additional tax outgo, according to sources and correspondence on the issue.

India first imposed windfall profit tax on July 1, 2022 joining a growing number of nations that tax super normal profits of energy companies. But the levy of Special Additional Excise Duty (SAED) on locally produced crude oil was seen by producers as violation of the contract which provides fiscal stability.

The SAED initially was Rs 23,250 per tonne ($40 per barrel) and in fortnightly revisions brought down to Rs 3,500 per tonne.

This is in addition to the 10-20 per cent royalty on price of oil and gas realised and an oil cess of 20 per cent. On top, the government is also entitled to a pre-decided share of profit after expenses are deducted from revenue earned from sale of oil and gas.

Vedanta on January 31 and on February 20 informed the ministry of petroleum and natural gas that it has made a deduction of $85.35 million for SAED paid on its prolific Rajasthan block, RJ-ON-90/1, and another $5.50 million for block CB-OS/2 in Cambay basin.

This was being done with a view to restore economic benefits as mentioned in the signed contracts under which it operates, the correspondence showed.

It argued that the contracts, called production sharing contract or PSC, provides for fiscal stability for the contracting parties. The PSC states that in the event of change of law or rule or regulation that results in adverse change to the expected economic benefits to any of the parties, the parties shall consult promptly and make necessary revisions and adjustments to the contract in order to maintain such expected economic benefits to each of them.

The ministry however in a February 22 letter called the “unilateral” deduction as “wrongful” and asked the company to pay the short paid profit along with interest within 7 days. Vedanta has not complied with the direction.

Vedanta’s Cairn Oil & Gas, which operates the two blocks, did not answer emails sent for comments. Emails sent to the oil ministry too remained unanswered.

Sources said the ministry was of the view that arbitration was the dispute resolution mechanism provided in the PSC and Vedanta was contemplating on that. But arbitrations are costly and time consuming.

Also, they carry reputation risk for the government that needs to be considered especially in context of promotion of ease of doing business.

Sources said the ministry on February 28 wrote to the finance ministry seeking a review of the SAED and raising the base price for such levy to $80 per barrel from current $74-75.