Sujay Mehdudia

Under-recoveries bound to come down for oil firms

  • Overall impact of the budget is positive for the oil and gas sector: IOC
  • Benefit of duty cut not being passed on to consumers

    NEW DELHI: Despite the two per cent cut in the excise duty on petrol and diesel by the Finance Minister, P. Chidambaram in the Union budget, Oil Marketing Companies (OMCs) on Wednesday ruled out any further cut in prices of the two auto fuels. However, they felt that the under-recoveries are bound to come down due to the excise cut.

    On the intervention of Prime Minister Manmohan Singh and Congress president Sonia Gandhi, the Finance Minister had promised that the losses of the OMCs would be offset by a cut in the excise duty structure in the budget. As the budget was round the corner, no duty adjustment was done then and Mr. Chidambaram has lived up to this promise, a senior Petroleum and Natural Gas Ministry official remarked.

    Mr. Chidambaram reduced the excise duty on petrol and diesel from 8 to 6 per cent. The excise duty cuts would translate into a 50 paise each benefit for the OMCs on petrol and diesel but since the oil companies are losing Rs. 1.35 a litre on diesel, the cut is not being passed on to the consumers. After the February price cut, under-realisation on diesel widened to Rs. 2.35 a litre.

    On petrol, the companies were making a profit of Rs. 2 a litre that was wiped out by the price cut. Based on the average crude import price of the second fortnight of February, the under-realisation on petrol is Rs. 1.54 a litre and that on diesel Rs. 1.97 a litre.

    According to an Indian Oil Corporation Limited spokesman, the overall impact of the budget is positive for the oil and gas sector.

    The spokesman said the under-recoveries would come down substantially and the overall reduction in such under-recoveries would stand at Rs. 1,250 crore annually.

    The remaining under-recoveries would be made up through issue of Government bonds.

    However, the one per cent cut in the Central Sales Tax (CST) would be offset by the one per cent increase in the education cess introduced by the Finance Minister. During 2007-2008, state-run oil firms will invest Rs. 38,902.06 crore, the highest of Rs. 28,243.44 crore being on exploration of oil and gas, Rs. 8,120.12 crore on refining and marketing and Rs. 2,508 crore in petrochemical projects.

    Currently, petrol attracts an ad valorem rate of 8 per cent plus Rs. 5 a litre fixed rate of duty while diesel has an 8 per cent ad valorem rate and Rs. 1.25 a litre fixed duty.

  • Finance Minister's Budgetspeech - Full Text
  • UnionGeneral Budget 2007-2008: Photo Gallery