Financial Daily from THE HINDU group of publications
Monday, Feb 18, 2002
Industry & Economy
Government - Taxation
Plans to triple cess on crude post-decontrol
MUMBAI, Feb. 17
THE Union Government proposes to triple the cess on indigenous crude oil to Rs 2,700 per tonne post-April. The move may help the Government recover an additional Rs 5,940 crore every year from crude cess alone.
According to sources, while increasing the cess will help fill up Government coffers, it may nullify the benefits of free market prices to both Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL).
The Government plans to free crude prices after the proposed decontrol. This would mean that indigenous oil companies get a selling price equal to international prices instead of the current 75 per cent import parity. Currently, both ONGC and OIL sell crude at about Rs 5,750 per tonne against Rs 7,660 in the international market.
Of this, about Rs 900 is deducted as royalty charges and another Rs 900 is paid towards crude cess, resulting in a net price of Rs 3,950 per tonne.
Post-decontrol, selling prices of crude will go up by Rs 1,900 per tonne.
At present, the international price is approximately $19 per barrel; this would mean an increase of $3 per barrel for Indian oil companies.
Compared to this, if the crude cess was to go up to Rs 2,700 per tonne it would wipe out the excess profits accruable to both companies, sources say.
Both ONGC and OIL are said to be against the Government proposal. The companies are also opposing the Government decision to further reduce prices of naphtha supplied to power and fertiliser units.
The Government has proposed that fertiliser and power companies be supplied naphtha at Rs 1,000 and Rs 600 below refinery transfer price.
The recommendations of the Oil Sector Restructuring Group (R-Group), which form the road-map for sector decontrol and crude pricing, include: Pricing of indigenous crude on the basis of average free-on-board price of imported crude, rationalisation of royalty and cess charged on crude and further reduction on kerosene and LPG input for fertiliser units.
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