The two national oil companies were to get a complete exemption from import duties for exploration equipment in the Union Budget, but riders in the revenue department notification now make the two national oil companies ineligible for the concession. The oil exploration companies will, in fact, have to pay more than they did before, because a special duty dispensation that used to be allowed to ONGC and OIL has been withdrawn, because of the Budgetary sop.

Without the special duty dispensation, ONGC and OIL pay a cumulative duty of 62 per cent. Till last year, the oil exploration companies were entitled to a flat import duty rate of 42 per cent on all capital goods imports. The customs duty notification in February allows duty-free import of capital goods against petroleum explorationlicences issued by the Union government. The ONGC and OIL import projects against mining leases, issued by state government, except when hunting for oil offshore.

The customs notification is, therefore, only good for licences for offshore exploration, which are issued by the Union government. The notification also becomes effective on April 1, this year and so, does not provide duty concession for ongoing projects.

The Union petroleum ministry had pointed out the anomalies to the mandarins of North Block, but were recently told that the notification would stay intact. The imbroglio over wordage will make ONGC a loser by close to Rs 500 crore and help the national exchequer gain as much, in the form of customs duty.

Meanwhile, a special dispensation that allowed the two companies a flat rate of duty for all capital goods imports has been withdrawn, to make way for the Budgetary relief. The special duty dispensation allowed the two oil exploration and production (E&P) companies to pay a flat rate of 42per cent for all equipment imports.

The system suited the E&P companies, since they are prone to import projects. Now that the special dispensation has been withdrawn, ONGC and OIL will have to pay duty on individual items.

The two companies will also require an end-use certification for such capital goods imports. The sum total of the varying duty rates should work out to as much as 62 per cent import duty for ONGC this year, say sources well versed with the exploration business.

The ONGC's exploration and development expenditure was Rs 1913 crore last year, when it paid close to Rs 200 crore to the national exchequer in the form of customs duty. The company has budgeted for an expenditure of Rs 2304 crore on exploration and development this year and expected to pay Rs 249 crore in the form of import duties. That estimate will now go wrong.

Incidentally, the ONGC had contributed Rs 5058 crore to the national exchequer in 1998-99 in the form of excise duty, cess, customs duty, royalty, corporate tax,tax on foreign companies and dividend. Oil India paid Rs 428.76 crore into the Central kitty last year, of which Rs 22.96 crore was in the form of customs duty. The Budget announcement for duty free capital goods imports for ONGC and OIL was in response to a long-pending demand from the oil companies and the petroleum ministry that the national oil companies be given a level playing field with investors eligible for the NELP sops. The NELP allows duty exemption for capital goods imported for oil exploration.