TMI Blog2016 (10) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... , of course, justiciable. Consequently, in the present case, it is for the IOC to allow or refuse permission for export on germane grounds - The other option to a party wanting to export crude oil is to apply under para 2.20(c) for an authorisation from DGFT and if so authorised, then to export it directly. The reasons given by the Empowered Committee of Secretaries are legal, germane and valid grounds to decline the request for export of crude oil. In fact, the policy prohibiting export of crude oil has concurrence of all the departments of the Union of India and has nexus with the energy security of the country. It is pertinent to mention that the respondent-UOI's argument with regard to mismatch between indigenously produced oil and the energy demand within the country is not denied by the petitioners. The petitioners' argument of loss to the exchequer is presumptuous and a disputed question of fact as according to the respondent- UOI the crude generated by the petitioners is Dated Brent and not Bonny Light. This is all the more relevant as it is an admitted position that the crude oil generated by the petitioners is of very heavy quality, high viscosity and wax with high ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Government's nominee, royalty (paid to the State Government) and cess. He pointed out that every additional US$ 1 per barrel of Rajasthan Block Crude Oil realized would fetch the public exchequer an additional US$ 41 million / ₹ 258 crores (Rs. 63/US$) on account of the Government's share of profit petroleum, share of its nominee, royalty and cess. 4. Mr. Sundaram contended that the Foreign Trade Policy of Government of India permits canalized export of crude oil through respondent no. 3 or direct export with the approval of respondent no.1. He stated that as Sr. No. 113 of Chapter 27 of Schedule 2 of ITC (HS) Classification of Export and Import provides for procedure for export of crude oil, it is permissible to export the crude oil. Consequently, according to him, petitioners have a legal right to export and the present writ petition has been filed for enforcement of the said legal right. 5. Learned senior counsel for petitioners submitted that though Article 18.1 of the Production Sharing Contract (for short PSC ) provides that until India attains self-sufficiency, the Contractor is obliged to sell to the Government or its nominee the entire share of cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumption of oil within India is either at par or less than the total production of oil and gas within India. According to him, Article 18.4 provides for deemed election in case of failure by Government to exercise this option for a particular year and it makes it obligatory for the Government to take and pay for the Crude Oil and Condensate in respect of which it has or is deemed to have elected to exercise its option to purchase. He stated that in the present case even if the petitioners' version is believed, then also the petitioners can only claim compensation. 12. In any event, he stated that the very object and purpose of entering into the PSC was not to generate revenue either for the petitioner or for the government, but to extract natural resources in the larger interest of the country. 13. Learned Additional Solicitor General further submitted that whether to permit export of crude oil exploited from the fields located within the territory of India essentially falls within the realm of a policy decision, which is to be taken by the government keeping in mind the national interest and larger public purpose. He pointed out that the National Policy is that, expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consumer interest. Allowing crude oil exports would lower the domestic supply available to meet demand. It would also reduce India's energy security by increasing its dependence on foreign oil, which is still vulnerable to frequent supply disruptions which may occur for a variety of reasons, including conflicts, natural disasters as well as technical difficulties. Hence, only Government should be allowed to make exemptions to the crude oil export ban if it is in the national interest. (ii) Declining trends have been reported in domestic oil and gas production which would further be accentuated if the export of very scarce petroleum mineral viz. crude oil is permitted and would be deterimental to Indian economy as an additional cost burden on account of two-side shipping tariff without any explicit monetary advantage to Indian economy in the immediate run. (iii) Permitting export of domestic crude would certainly compel the Indian refineries to operate by importing additional equivalent quantity of crude oil at higher cost, consequently leading to reduction in Gross refining margin of Indian refinery as well. (iv) Permission to export would add further chaos to worse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d PVT buyer which is agreed amongst them at arm's length. 22. Mr. Tushar Mehta stated that the foreign trade policy is a policy document containing broad policy outlines of the Central Government to give effect to the Foreign Trade (Development and Regulation) Act, 1992 [for short Act, 1992 ]. He submitted that Section 3(2) of the Act, 1992 empowers the Central Government to make provisions for either prohibiting, restricting or otherwise regulating particular export/import. According to him, in exercise of the powers conferred upon the Central Government, the export of crude oil is provided in category of State Trading Enterprises (for short STE ), and thus, is not freely exportable. 23. According to him, Chapter 27 merely means that if the Union Government permits export of crude oil, it can only be through STE . 24. He stated that in the present case the application of the petitioners to permit export of crude oil was considered by the DGFT after taking assistance and advice of EXIM Facilitation Committee under Para 2.51 which reads as under:- 2.51 EXIM Facilitation Committee (a) Restricted item Authorisation may be granted by DGFT or any other RA aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d are bound to permit the petitioners to export the Rajasthan Block Crude Oil not lifted by the Government or its nominee PSUs. He also stated that the purpose of looking into the PSC is only to satisfy that equities are not violated or do not come in the way of granting legal reliefs to the petitioners. 29. He reiterated that in terms of Articles 18.1 of the PSC, petitioner nos. 1 and 3 are required to sell to the Government or its nominees their total share of the Rajasthan Block Crude Oil. According to him, on the Government failing to directly or through its nominees lift its share of the Rajasthan Block Crude Oil, Article 18.7 provides that Petitioner Nos. 1 and 3 shall be entitled to freely lift, sell and export any Crude Oil and Condensate which the Government has elected not to purchase. 30. Learned senior counsel for the petitioners contended that export of crude oil is neither prohibited nor restricted. He stated that in terms of the Foreign Trade Policy read with the ITC (HS), there is no other regulation on the export of crude oil except canalization through respondent no. 3. He submitted that the respondents had failed to show any policy of the Government of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Rajasthan Block Crude Oil other than to export it. He stated that the private refineries which are permitted to export the refined products should not be permitted to purchase the Rajasthan Block Crude Oil at 20-25% discount from Brent Crude price inasmuch as Government also loses revenue. 36. Having heard the parties at length and having perused the paper book this Court is of the view that the present writ petition is maintainable as a writ court is empowered to entertain a writ petition even in contractual matters when the contract has been executed in pursuance to a constitutional provision and the issues involved are alleged to have a public law character. Also relief has been sought against respondents no.2 and 3, who are not parties to the PSC. 37. This Court is of the view that it is essential to analyse paragraph 2.20 and Chapter 27 of the Foreign Trade Policy 2015-2020. The said paragraph and Chapter are reproduced hereinbelow:- Import/Export Through State Trading Enterprise: 2.20 State Trading Enterprises (STEs) (a) State Trading Enterprise (STEs) are governmental and non- governmental enterprises, including marketing boards, which deal with goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and if 'any other person' intends to import/export, it will have to apply to IOC, who will consider the same in its wisdom and after consulting anyone it deems appropriate. The ultimate decision to permit export/import is always a decision to be taken by the STE which is, of course, justiciable. Consequently, in the present case, it is for the IOC to allow or refuse permission for export on germane grounds. 39. In any event, the Foreign Trade Policy is a broad policy document providing for regime of import/export of items and cannot be read as a statute for seeking a mandamus solely based upon it, if otherwise the decision of the STE Union of India is not arbitrary. 40. The other option to a party wanting to export crude oil is to apply under para 2.20(c) for an authorisation from DGFT and if so authorised, then to export it directly. 41. In the present case, the DGFT when approached by the petitioners in view of Clause 18 of PSC, sought a 'No Objection' from the Government of India, who in turn took a considered decision in the meeting of Empowered Committee of Secretaries dated 27th January, 2016 to reject the petitioners' request for export of crude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the crude oil is very different form the general nature of crude oil produced from other fields and it requires special technology to transport and refine the oil. 6. In view of this, the Government nominated PSU refineries had technical constraints to lift the crude oil from the Contract Area. In order to overcome the technical constraint, the Operator approached the Government to approve as part of the Contract Cost, a special purpose heated pipeline for transporting the crude oil from the Contract Area to Salaya at Gujarat coast. The proposal of the Operator was approved by the Government. The Operator laid the pipeline and recovered the cost of the pipeline as part of the Contract Costs. 7. The Operator again approached the Government to permit it to sell the oil to private refineries in India, as the PSU refineries with their technical constraints could not lift the entire crude oil. Government has also allowed sale of crude oil to private refineries in India of the quantity not lifted by the sale of crude oil to private refineries in India of the quantity not lifted by the PSU refineries. Accordingly, the Operator has been selling the entire crude oil produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re legal, germane and valid grounds to decline the request for export of crude oil. In fact, the policy prohibiting export of crude oil has concurrence of all the departments of the Union of India and has nexus with the energy security of the country. It is pertinent to mention that the respondent-UOI's argument with regard to mismatch between indigenously produced oil and the energy demand within the country is not denied by the petitioners. 43. Even if Mr. Sundaram's argument is accepted that Sub-clause (c) to Clause 2.20 is an exception to sub-clause (a) and grants respondent no. 1 the power to authorize any person other than the designated STE to import or export any of the goods notified for exclusive trading through such STE, then also the issue that arises is whether STE is bound to export crude oil at any third party's request dehors the embargo contained in the contract executed between the third party and the government. 44. Articles 1.63, 18 and 27.1 of the PSC which deal with domestic supply, sale disposal and export of crude oil and condensate are reproduced hereinbelow:- ARTICLE 1 - DEFINITION xxxx xxxx xxxx xxxx 1.63 Self-sufficienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made in respect of the current year or if no election has been made, to take all of the crude oil and condensate produced in the ensuring year. The Government shall be obliged to take and pay for the crude oil and condensate in respect of which it has or is deemed to have elected to exercise its option to purchase. 18.5 All payments in respect of sales to the Government pursuant to provisions of this Article 18 shall be made by the Government within thirty (30) days of the date of submissions of an invoice. Each Party constituting the Contractor shall submit invoices on or after the first and fifteenth days of each Calendar Month (or at such other intervals as may be agreed with the Government) for deliveries made to the Government of Crude Oil or Condensate. In the case of sales by a Foreign Company, payments shall be made in United States Dollars or at the request of the Foreign Company in any other convertible currency acceptable to the Government and the Foreign Company, by wire transfer to the credit of the Foreign Company's designated account with a bank within or outside India designated by the Foreign Company. All amounts unpaid by the Government by the due date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsuant to this Article 18, subject to Government's generally applicable destination restrictions in respect of countries with which the Government, for policy reasons, has severed or restricted trade. 18.8 No later than sixty (60) days prior to the commencement of production from a Development Area, and thereafter no less than sixty (60) days before the commencement of each Year the Contractor shall cause to be prepared and submitted to the Parties a production forecast setting out the total quantities and grades of Crude Oil and Condensate that it estimates will be produced from each Reservoir within that Development Area during the succeeding Year, based on a maximum efficient rate of recovery in accordance with good petroleum industry practice. No later than thirty (30) days prior to the commencement of each Quarter, the Contractor shall advise its revised estimate of production for the succeeding Quarter. 18.9 Each Party constituting the Contractor shall, throughout the term of this Contract, have the right to separately take in kind and dispose of all its share of Cost Oil and Profit Oil and shall have the obligation to lift the said Cost Oil and Profit Oil on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing an option under Article 18.4 to purchase the entire production in a particular year. Article 18.7 itself makes it explicit that it is only when the Government has elected not to purchase, the petitioners shall be entitled to freely lift, sell and export any Crude Oil and Condensate. Consequently, attaining self-sufficiency is a precursor to trigger the right of the petitioners to seek permission to export their participating interest/share of crude oil and condensate. 46. Moreover, Articles 18.10 and 18.11 provide that if the Union of India fails to lift or does not exercise its option to lift the petitioners entire Participating Interest share of Crude Oil and condensate, the petitioners have a right to seek compensation. In the present case, in absence of any notice of India attaining self-sufficiency, the petitioners can only claim compensation under Article 18.10 read with 18.11 from the respondent no.2, under the dispute resolution mechanism provided under Article 33 of the PSC. 47. It is pertinent to mention that the petitioners vide letter dated 14 th August, 2013 had itself requested the Government to permit swapping of crude oil in International market as it ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lished for sale to private refineries viz., Essar and Reliance. The relevant portion of Minutes of Meeting dated 17th August, 2009 of ECS is reproduced hereinbelow:- 3.12 In addition to supply to PSU refineries, contractor has submitted a proposal to approve the delivery point at the outlet flange of the delivery facilities being established, for sale to private refineries, subject to approval of GoI for such sales. It has indicated that though Government is making efforts to offtake the maximum quantities by PSU refineries, teh private sector refineries have agreed to offtake 60,000 bbls/day by each of the refineries viz. Essar and Reliance. The Salaya terminal (AGI 33) on Mangala Development Pipeline is located at a distance of 4 km from refinery gate of Essar. A new Intermediate delivery station (AGI 32A) on Mangala Development Pipeline is proposed and is located about 10 Km from Reliance Tank farm. At Salaya, intermediate pigging station and heating facilities have been planned. It has been reported by the Operator that in case the Government approves sales to other than PSU Refineries, the cost estimates for creating delivery facilities would be in the range of US$ 40 MM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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