The Centre has asked government-owned explorers Oil and Natural Gas Corporation and Oil India to pay an additional royalty of more than $ 1 billion (Rs 6,700 crore) to crude oil-producing states such as Assam, Gujarat, Andhra Pradesh, Rajasthan and Tamil Nadu at "pre-discount" rates with effect from February 1, 2014, reported Financial Express. The oil companies will have to pay the royalty based on their gross realisation from the sale of crude oil and not on the net price.

According to a Union Petroleum Ministry order on July 15, the decision was taken based on an interim ruling by the Supreme Court on February 13, 2014, which ordered the two firms to pay royalties to all similarly placed crude oil-producing states, including Assam, at pre-discounted prices. Petroleum Minister Dharmendra Pradhan said, “We have decided Assam and oil-producing states will get additional royalty from ONGC and Oil India. Assam might get above Rs 1,400 crore."

According to Moneycontrol.com, the impact on ONGC will be negligible. However, Oil India will suffer as 100% of its oil production is onshore in Assam, and the company may have to shell out an additional Rs 2,500 crore.

The petroleum ministry and these government-owned explorers had, in 2008, decided that royalty will be based on the net price. The difference between the gross and net price is the subsidy burden borne by these companies to compensate state-run Indian Oil Corporation, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited for selling sensitive petroleum products below market cost.