'Retrospective' amendment to Rajasthan production pact puts Cairn India in a spot

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26 Aug, 2025 12:21

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A 'retrospective' amendment to the contract for the prolific Rajasthan oil block has put its operator Cairn India in a spot, as it has to shell out more to the government to retain it for another 10 years.

Cairn India's 25-year contract for exploration and production of oil and gas from Barmer block RJ-ON-90/1 is due for renewal on May 14, 2020, but it has to, as per a new policy, apply for a 10-year extension within this month, sources said.

The company feels the May 1995 Production Sharing Contract (PSC) for the block provided for an automatic 10-year extension on same commercial terms if there are oil and gas left to be produced. But now the government has midway retrospectively changed fiscal terms in the name of extension is unjust to it, they said.

The government had in March last year approved a new policy for extension of PSCs that provided for an extension beyond the initial 25-year contract period only if companies operating the fields agree to increase the state's share of profit by 10 percent.

State-owned Oil and Natural Gas Corporation (ONGC), which as a government nominee picked up 30 percent stake in the Rajasthan block in 1995, also was of the opinion that PSC provides for an extension on same terms.

ONGC had first in May 2015, then again on at least two occasions in 2016, concurred with Cairn's interpretation of the PSC for extension of the Rajasthan contract by 10 years on same terms.

"ONGC had obtained an external legal opinion from B Sen, an eminent senior counsel of Supreme Court of India on the interpretation of RJ-ON-90/1 PSC. B Sen opined that as per Article 2.1 of PSC, terms and conditions of PSC can be negotiated only in the case where the contract is to be extended beyond 35 years (25 initial years plus 10-year extension)," the company had written to the Oil Ministry on May 25, 2015.

It had stated that the company being the licensee/lessee as well as joint venture partner in RJ-ON-90/1 block "felt that to protect ONGC's interest as well as to enable a continued participation in exploration and production activities in RJ-ON-90/1 block, it would be prudent to seek extension of the contract with same terms and conditions as per the existing contract".

ONGC board, which has two senior government officials as members, had on April 28, 2015, approved seeking "a 10-year extension to the duration/tenure of the PSC for the RJ-ON-90/1 block on existing terms and conditions from the Government of India".

After Cairn, now known as Vedanta, in February 2014 asked the Oil Ministry for extension of PSC by 10 years, ONGC concurred with the proposal, sources said, adding that the company feels the new conditions for increased profit share is unfair.

When the PSC provided for an automatic extension, any change now is an attempt to retrospectively alter the signed contract, they said, adding that the company will decide on applying for the extension soon.