NEW DELHI: Upstream oil and gas companies ONGC, Oil India and Gail India are worried that various Budget proposals would increase their tax outgo substantially, even as they are prevented from selling crude oil at global price.
These firms will have to share a larger part of the losses incurred by oil retailers IOC, HPCL and BPCL in the next financial year as the government is determined to cap the state’s share of subsidy to less than 2% of GDP.
ONGC sources told FE the company would have to pay about R4,500 crore more on account of the increase in cess on crude oil production from R2,500 to R4,500 a tonne. The 2% jump in excise and service tax to 12% is expected to add a few hundred crores to ONGC’s existing outgo of R300 crore on this count. TK Ananth Kumar, director (finance), Oil India said the higher rate of cess on crude production means an extra outgo of R800 crore. Besides, the 2% increase in service tax would make oilfield services costlier, he said.
Finance minister Pranab Mukherjee, however, has a different take. When queried by FE on this issue, he said ONGC and Oil India have benefited when oil price rose above the government’s estimate of $90 a barrel for this fiscal. “They obviously have made some money,” he said. “I would not have got it (a share of this higher profit) in any other manner, except perhaps through higher dividends,” he said.
“The cess cannot be recovered from the consumer or the oil marketing companies,” the minister said.
ONGC reported a 21% jump in net profit for the first nine months of this fiscal at Rs 19,479 crore, compared with the same time a year ago.
Mukherjee said the rate of cess was set in 2006 and he revisited it only after six years. “The cess is dedicated to the development of the oil and gas industry and is not spent on anything else,” the minister said. “We need money for the kind of investments needed for the development of the oil and gas sector,” Mukherjee said.
So far this fiscal, upstream companies have borne 38% of the Rs 97,300-crore losses incurred by retailers. Clearly, when global crude oil is hovering around $120 a barrel, the government expects them to give more generous discounts on crude oil sales to retail companies who sell diesel, LPG and kerosene at regulated prices.
Private sector Cairn Energy said it is looking at all options for relief from the increase in the cess.
“There are terms and provisions in the production sharing contract including the fiscal stability clause. We are currently examining these existing provisions and understand how they would apply in this case,” Cairn India stated.
The Budget also rationalised import duty on certain petroleum products like non-domestic LPG, non-public distribution kerosene, jet fuel and naphtha to 14%, on par with their excise duty. Import of natural gas for power production is now duty-free, which would give some relief to fuel-starved power producers.
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