Here's how Vedanta benefits from the government move to cut effective royalty rates

Shares of Vedanta Ltd., the recently demerged mining conglomerate led by Anil Agarwal, are trading with gains of over 2.5% on Tuesday, May 12, after the latest move by the government on royalties involving oil and gas production.

The stock has now gained in five out of the last seven sessions since it began trading adjusted for the demerger of its Aluminium, Oil and Gas, Iron and Steel, and Power businesses.

Latest Government Move

The government has cut the effective royalty rates on oil and gas production, in a boost to India's upstream sector.

Based on this, the offshore crude royalty has been reduced to 8% from 9.09% under the revised regime. Natural Gas royalty has also dropped to 8% from 10% earlier.

As a result of these moves, shares of ONGC and Oil India have gained 6% and 5% respectively.

How Does Vedanta Benefit?

As per the new norms, Vedanta's Rajasthan fields will see the royalty rates decline from the current 16.67% to as low as 10.6%.

The new royalty structure aims to incentivize exploration and domestic hydrocarbon production.

Under HELP (Hydrocarbon Exploration Licensing Policy) blocks offered after 2019 will get even lower royalty rates to attract fresh investments.

Vedanta Demerger

Shares of Vedanta are trading 2.3% higher on Tuesday at ₹305.3.

The management had earlier mentioned that the demerged entities will list within the next six to eight weeks, subject to approvals.

Shareholders of Vedanta are entitled to one share of the demerged entity for every one share they own of the current listed entity.

Those who buy the shares today are not eligible to avail the demerger benefits.

Also Read: ONGC, Oil India shares rise 6% after CLSA flags positive read through of royalty cut