Chief minister Vasundhara Raje seems determined to extract a windfall for Rajasthan and has at the same time opened a new chapter in the area of oil and gas exploration in her desert state. Raje petitioned the oil and petroleum ministry for a share in profit petroleum even as the Scottish exploration company Cairns Energy pic struck oil in Barmer district of her state. Profit petroleum is the share of crude the Central government is entitled to receive in case of a commercial discovery. Currently all profit petroleum, whether for onland or offshore production, goes to the Centre, with the concerned states receiving only royalty from onland oil and gas production. Profit petroleum is a biddable item and quantified in the production sharing contract (psc) that is entered into between the government and the exploring company. The new oil well in Barmer, named Mangala, has heartened petroleum and natural gas authorities enough for their minister Ram Naik to hail the find as the largest onshore discovery in India in the past 25 years. That both Raje and Naik hail from the same party, the bjp, which rules both at the Centre and in Rajasthan, evidently has a role to play in New Delhi's inclination to support her view. The Centre is also likely to consider an oil refinery for the state at a later stage as full commercial production from the well is not expected to commence before another 3-4 years. The yield is estimated at 63-153 million tonnes, with initial commercial tapping expected to start from March 2005. Cairns Energy has struck oil at five sites in this block since 1995, when it signed a memorandum of understanding with the petroleum ministry and ongc for exploration work. Its total investment till now in this region is around $150 million. The ministry had in January approved commercial activity in the Saraswati and Rajeshwari oilfields in Barmer district. But just as the Constitution conferred ownership on the Union government of undersea minerals within India's maritime zone, it declares that the state governments are the owners of all onland minerals, including oil and gas resources. The constitutional powers of the Centre over onland hydrocarbons should logically be restricted to the regulation and development of petroleum and natural gas. Raje hitched her pitch with that of Gujarat and Assam in seeking to extract concessions from the Union government. She argued, and rightly so, that since the state governments invest substantially in the creation of the necessary infrastructure, public amenities, security, and environmental damage control systems, they have an additional claim to a share in profit petroleum. It stands to reason that such revenue accruals will also help Rajasthan and other oil-producing states take up development projects in the desert areas of Rajasthan and backward regions in other states where onshore oil and gas fields are anticipated. After all, these state governments are the leasing agencies for land required for hydrocarbon exploration and production, even though they were not partners in the pscs. It cannot be denied that state governments have the right to exploit their hydrocarbon reserves, which are non-renewable and finite. Last year the Centre yielded to demands by oil-producing states for an enhanced crude oil royalty regime. Under this three-tiered royalty scheme of ad valorem levies, crude oil produced at onland fields are taxed at 20 per cent of the wellhead price, while the levy for offshore fields is 10 per cent, and for deepwater fields 5 per cent. The decision has helped oil-producing states like Assam, Andhra Pradesh, Gujarat, and Tamil Nadu to raise their revenue realisations by over Rs400 crore annually. These states also secured enhanced royalty after the administered price mechanism was dismantled on 1 April 2002, with the oil royalty being linked to wellhead price derived from the market-based price of crude oil. The changed policy also benefited ongc, whose tax outgoings were reduced significantly as half of its crude oil is produced in Mumbai offshore fields. Oil blocks awarded under nelp have a different royalty regime. And while the new policy envisages a royalty rate of 20 per cent of the wellhead price for onland crude oil production till 2006-7, from the following year onwards this rate will decline by 1.5 per cent each year to facilitate convergence with nelp rates of 12.5 per cent within a five-year period. In the past, for whatever reason, the Indian government built up regulatory regimes in various spheres. But it not only brought regulation; it also commandeered revenue. Thankfully, steps are now being taken to remedy this.