Cairn India expects fair price realisation of crude
Cairn India operates the Rajasthan block (Cairn 70 per cent, ONGC 30 per cent) which produces 22 per cent of India's crude oil production.
Rajasthan block Production Sharing Contract (PSC) puts an obligation on Operator (Cairn India) to maximize production & get the optimum market value for crude oil & natural gas production which benefits Government of India (GOI), Government of Rajasthan & all other stakeholders.
The GOI is obligated to purchase the entire quantity of crude oil. GOI is not purchasing entire quantity. In fact oil PSU refineries have not been able to lift even their share of nominated quantity of crude oil. The joint venture partners are thus compelled to sell to private refineries.
PSC stipulation of domestic sales obligation gives domestic refineries inequitable bargaining power in determining crude oil price. This is because buyers know that seller (Cairn India & ONGC) can sell only in Indian market. Thus, sellers are put in an inherently disadvantageous position during price negotiations.
The true value of Rajasthan crude oil is not realized due to this artificially imposed, uncompetitive structure. All stakeholders in the project, thus, realize a price which is sub-optimal even as crude oil produced from the Rajasthan block has the potential to be valued higher by refineries / customers in other markets vis-à-vis Indian market, given that it is low in sulphur.