The Hindu Business Line : ONGC, GAIL to carry the can

IN the absence of any tax sops for the petroleum sector in the Budget, the stage is set for the Petroleum Ministry to spill some of the LPG and kerosene subsidy burden into the backyard of upstream major Oil and Natural Gas Corporation (ONGC) and gas transporter Gail (India) Ltd. This year, the LPG and kerosene subsidy burden on the oil marketing companies is estimated to be in the region of Rs 9,000 crore (after accounting for the government subsidy), with little hope for any price revisions to mitigate the burden. Last year, a similar situation prevailed with the government directing ONGC and Gail to bear a significant portion of the Rs 8,200-crore subsidy bill.

Budget 2004-05 has not been kind either to the oil companies or the consumers. The government subsidy on LPG and kerosene has been pared to Rs 3,500 crore, belying expectations of a higher allocation. The oil companies, meanwhile, would have to fork out significant amounts in view of additional service tax as well as the newly constituted education cess.

Indian Oil Corporation alone would be required to pay out around Rs 450 crore this fiscal towards the education cess. Oil and Natural Gas Corporation (ONGC) has been burdened to the extent of an additional Rs 400 crore, owing to the additional service tax incidence (Rs 250 crore) as well as the education cess. ONGC has one of the largest volumes of service contracts, especially in the exploration business such as hiring of rigs, platforms.

The Finance Ministry has once again ruled out implementation of the Rs 1,570-crore scheme for compensating refineries on taxes levied by state governments but are not recovered from the consumer during the current fiscal. This, despite the fact that the last Budget had provided this amount under "irrecoverable taxes."

In Thursday's Budget announcements, the revised estimate for irrecoverable taxes during fiscal 2003-04 is a mere Rs 220 crore, which relates to payments during fiscal 2002-03. Further, for fiscal 2004-05, there is no allocation for payment of irrecoverable tax. Under the scheme, which was operational in 2002-03, Indian Oil Corporation and other public sector marketing companies paid Reliance Industries Ltd around Rs 470 crore. The other major beneficiary was Kochi Refineries Ltd, which got around Rs 200 crore.

Reliance was paid this sum towards the Central Sales Tax (CST) levied by the Gujarat Government on the petro-products sold by its Jamnagar refinery to the public sector oil marketing companies outside the State and not recovered from the consumer.