The petroleum ministry plans to change the royalty sharing mechanism to include direct compensation for villages and individuals who forgo their land for oil and gas production.

The oil and gas producer, instead of paying the full royalty on onshore producing fields to the states, would retain 5 per cent of it in a separate account. The ministry would contribute a matching amount to the account from the royalty it earns from offshore blocks. “Total royalty (5 per cent from the state government and 5 per cent matching share from the Central government) to the sub-state level may be shared at different levels — district, block and village in the ratio of 25:25:50,” says the ministry’s draft paper.

“Out of the royalty share to be given to the village, 50 per cent could be utilised by a group of individuals/families whose lands have been affected by the project, as an untied fund for alternative livelihood. The remaining half could be used for local community as an untied fund preferably in the field of energy and environment,” it adds.

With states earning a royalty of Rs 3,000 crore per annum on average, the annual kitty available for local self governments would be Rs 300 crore with half out of the state’s share and half matched by the Centre.

The proposal is going to be circulated to the states for their response to this decentralised disbursement and thereafter be put before the Union Cabinet for approval to amend the Oilfields Regulation & Development Act of 1948 which empowers the Centre to fix royalty rate as well as its methodology.

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