Following the disallowance of Rs 9,545 crore (USD 1.16 billion) in some incurred expenditures, mining billionaire Anil Agarwal’s Vedanta Ltd won an arbitration against a demand for a bigger payout from its productive Rajasthan oil and gas reserves, the company said.
The government has sought additional profit petroleum (or its share from the oil and gas fields) after it reallocated certain costs between the fields in the block and disallowed a portion of the cost incurred on laying a pipeline to evacuate oil produced from the Rajasthan block.
According to the contract, companies are permitted to recoup all expenses incurred prior to sharing profits with the government in a predetermined ratio. If some of the cost is excluded, earnings would rise and the government’s share would increase as a result. Such a demand had been contested by Vedanta before an arbitration body.
“The company has received an arbitration award dated August 23, 2023… upholding the contention of the company that additional profit petroleum, on account of Director General of Hydrocarbon (DGH) audit exceptions in relation to allocation of common development costs across Development Areas and certain other matters, is not payable as per terms of the Production Sharing Contract for Rajasthan Block,” it said in a stock exchange filing.
It however did not give details of the arbitration award. “The company is in the process of reviewing the award in detail and evaluating its financial impact,” it said.
In its latest annual report, Vedanta had put the number at Rs 9,545 crore.
“DGH, in September 2022, has trued up the earlier demand raised till 31 March 2018 up to 14 May 2020 for Government’s additional share of profit oil based on its computation of disallowance of cost incurred over retrospective re-allocation of certain common costs between Development Areas (DAs) of Rajasthan Block and certain other matters aggregating to Rs 9,545 crore applicable interest thereon representing share of the company and its subsidiary,” it said.
The firm said it disputed the demand and the other audit exceptions as it believed these were not in accordance with the PSC and were entirely unsustainable.
“In accordance with PSC terms, the group had commenced arbitration proceedings. The final hearing and arguments were concluded in September 2022. Post hearing briefs were filed by both the parties and award is awaited,” the annual report released last month said.
The award has now come.
Sources said DGH, which is the upstream nodal agency of the Ministry of Petroleum and Natural Gas, had way back in May 2018 raised a demand for an additional share of profit oil for the government after disallowing Rs 1,508 crore out of the cost incurred on laying a heated-pipeline to transport Barmer crude and Rs 2,723 crore in the reallocation of certain common costs.
In the years that followed, the figures were updated. As the state-owned Oil and Natural Gas Corporation (ONGC), which owns a 30% interest in the block, had committed to compensate the government in the event that these charges were prohibited, they only apply to Vedanta’s portion of the Rajasthan block.
It was not immediately known if the government would abide by the arbitration award. The government had previously challenged all arbitration awards it had lost.
The company’s total consolidated revenue declined by 13% YoY from Rs. 39,355 Cr in Q1 FY23 to Rs. 34,279 Cr in Q1 FY24, for the same period net profit declined by 40% from Rs. 4,421 Cr to Rs. 2,640 Cr.
On Monday, at 13.30 p.m. shares of this company were trading 2% up at Rs. 238.
A diversified metal and mining company, Vedanta Ltd. The company’s subsidiaries and primary commercial interests include oil and gas, power, and the exploration, mining, processing, and export of natural resources. Lead, zinc, silver, copper rod and cathodes, aluminium, iron ore, commercial electricity, steel, nickel, copper, and oil and gas are among the company’s product offerings in India.
