Business Today

Oil cos seek customs duty cut in Budget

The petroleum ministry has backed the oil companies on the issue but it remains to be seen whether finance minister Pranab Mukherjee factors this into his budget.

S. P. S. Pannu   New Delhi     Last Updated: February 28, 2011  | 09:55 IST

Public sector oil companies are pinning hopes on a customs duty waiver on crude oil and a reduction in excise duties on petroleum products in the forthcoming Budget as the average price of the Indian basket of crude imports has jumped by over $5 a barrel in February to touch $99.37 a barrel till Wednesday and is still rising.

The average price of the Indian basket of crude oil was $93.87 in January when petrol prices were raised by Rs 2.50 a litre.

Although petrol prices have been freed as part of the official policy, the political compulsions of the government prevent it from allowing the oil companies to increase prices.

According to official sources, Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp (HPCL) are currently losing Rs 2.75 per litre on petrol and Rs 10.74 a litre on diesel. They are also losing Rs 21.60 per litre on kerosene and Rs 356 on each LPG cylinder sold to households.

The subsidy bill for this financial year is now expected to cross Rs 76,000 crore.

While the oil companies are selling petroleum products at subsidised prices they have to pay a five per cent customs duty on the crude oil that they import. When the price of crude oil shoots up, the duty also increases as it is levied on the value of the imports. This only adds to the financial burden of the oil companies as close to 80 per cent of the country's crude requirement has to be met through imports.

The high excise duty on petroleum products also gets built into the price. The oil companies are of the view that if the excise duties are lowered the burden on the consumer and the oil companies will be reduced.

The petroleum ministry has backed the oil companies on the issue but it remains to be seen whether finance minister Pranab Mukherjee factors this into his budget.

The government had in 2008-09 reduced the customs duty on crude oil to nil as international prices had skyrocketed. The average price of the Indian basket of crude has risen again to the same levels.

"It makes little sense for the government to make the oil companies pay customs duty on crude and then reimburse them for selling petroleum products at subsidised rates," a senior official pointed out.

The public sector oil companies also want the finance minister to make a realistic provision in the budget for subsidies on petroleum products so that the government's share of the compensation comes through in time for preparing their financial results.

The Budget 2010-11 presented by finance minister Pranab Mukherjee had made a provision of a measly Rs 2,900 crore towards subsides on LPG and kerosene.

This is only a small fraction of what the Centre will actually end up paying as subsidy this year.

Courtesy: Mail Today

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