NEW DELHI: The government has hiked the cash subsidy it will pay to state-owned oil firms for selling fuel below cost in current fiscal to Rs 65,000 crore but has also hiked the cess upstream firms like ONGC pay on crude oil production to Rs 4,500 per tonne.
“Crude petroleum oil produced in India attracts a cess of Rs 2,500 per tonne under the Oil Industries Development Act. This rate was last revised in Budget 2006-07. As a measure of indexation, I propose to increase the rate of cess to Rs 4,500 per tonne,” Finance Minister Pranab Mukherjee said presenting Budget for 2012-13 in Parliament today.
The increase in cess would result in Oil and Natural Gas Corp (ONGC) paying Rs 4,000 crore extra while Oil India Ltd would have to shell out Rs 800 crore additional. Cairn India, which was recently acquired by mining group Vendanta Resources, would have to shell out about Rs 1,000 crore at peak production from its Rajasthan oil block.
In the Budget, Mukherjee raised compensation the government will pay to Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp for selling diesel, domestic LPG and kerosene to Rs 65,000 crore for current fiscal as against Rs 20,000 crore provisioned in the budget estimate for 2011-12.
The three retailers are projected to lose over Rs 137,000 crore this fiscal, of which 42 per cent would come from upstream firms.
For the 2012-13, he provisioned Rs 40,000 crore towards fuel subsidy. After adding freight subsidy and fixed subsidy provided on PDS kerosene and LPG, the outgo has been pegged at Rs 43,580 crore.
Fuel retailers currently lose Rs 14.73 per litre on diesel, Rs 30.10 per litre on kerosene and Rs 439.50 per 14.2-kg domestic LPG.
“We are looking at all our options. There are terms and provisions in the Production Sharing Contract (PSC) including the fiscal stability clause. We are currently examining these existing provisions and understand how they would apply in this case,” a Cairn India spokesperson said on the increase in cess on domestic crude oil.
Essar Oil Managing Director and CEO L K Gupta said: “We are slightly disappointed that the government has overlooked the sector by delaying any announcement on fuel price deregulation which could have provided level playing field to the private oil marketing companies.”
Non-extension of income tax holiday on refineries beyond March 31, 2012 deprives the country from emerging as a major global hub for export of petroleum products, he said.
Kalpana Jain, Senior Director, Deloitte Touche Tohmatsu India, said direct subsidy in cash compared to bonds is expected to improve the cash and working capital position of oil and gas companies, particularly oil marketing companies as they bear about 24 per cent of the subsidy burden the balance (76 per cent increased from 67 per cent) being split between the upstream companies and government.
Besides, custom duty for some equipments used in Exploration & Production and mining has been brought down to nil which can reduce the cost of operations.