InvestorQ : What is the latest decision by the Delhi High Court on the royalties that the government can charge from the Barmer oil fields of Vedanta?
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What is the latest decision by the Delhi High Court on the royalties that the government can charge from the Barmer oil fields of Vedanta?

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Sam Eswaran answered.
8 months ago
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Delhi High Court ruled on Friday 26 March that the central government could demand 10% higher share in the profit derived from oil produced by Vedanta from Barmer oil field in Rajasthan. This could be made a condition to extend the production sharing contract or PSC with Vedanta for another 10 years. It may be recollected that the Barmer oilfields had come under the control of Vedanta when they had acquired Cairn India 10 years ago.

Chief Justice D N Patel of the Delhi High Court held categorically that no bar could be placed on the right of the government to extend the contract on fresh terms as long as they were in public interest and serve the purpose of maximising revenue generation for the exchequer. The Court also ruled that Vedanta could not demand extension of the PSC on the same terms, since the government was acting as the trustee of the natural resources. The original PSC dates back to 1995 and court allowed a 10% profit escalation clause.

Earlier in May 2018, a single judge bench had directed the government to extend the tenure of the contract for a period of 10 years till 2030, on the same terms and conditions as the original PSC. However, this order by Justice Patel virtually overturns the single-judge bench order. The centre was represented by Solicitor General Tushar Mehta, who had challenged the single-judge bench order. ONGC also has a stake in the Barmer oil block.

In 2017, the government came out with a policy that was also applicable to all existing PSCs. The new policy stipulated that extension of a PSC, after expiry of initial contract period, would be granted on payment of additional 10%. Vedanta was represented by Harish Salve, which had demanded that the PSC be extended on the same terms as before. The latest judgment makes it clear that the government was perfectly within its rights to escalate.

The judge specifically ruled that an escalation of 10% after 25 years cannot be called unreasonable by any stretch of imagination. The judgment underlined that if public interest was taken into account then this escalation was perfectly legitimate. Vedanta had promised to infuse an additional Rs.30,000 crore into Barmer oil field if the same terms were protected. The judge also held that the benefits for Vedanta will be beyond PSC period.

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