The Telegraph
Since 1st March, 1999
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Cut in oil duty hits refiners

New Delhi, Aug. 18: The 5 per cent cut in customs duties on petroleum products announced today will benefit the oil marketing companies such as IBP, while oil refining companies like Reliance and Mangalore Refineries and Petrochemicals Ltd (MRPL) will take a hit on their bottomlines.

Companies such as Indian Oil Corporation (IOC), Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL) will see a gain in their marketing divisions but lower margins for their refinery divisions.

Since the prices of the petroleum products will remain at the same level and the excise duties have been lowered, the oil companies will gain as they will be passing on 3 per cent less to the government from their earnings.

A senior official told The Telegraph that IOC will gain Rs 1,800 crore as a result of this decision. Its subsidiary IBP, which ran into a loss during the first quarter, will benefit to the tune Rs 400 crore during the current fiscal.

The reduction in customs duty has, in a way, come as a correction in the distortion in prices as the oil companies were not actually importing any petrol, diesel, or kerosene.

Yet, the marketing companies had to pay a notional customs duty and ocean freight on these goods to the oil refineries as the price was fixed on an import parity basis. With the reduction in customs duty, the import parity price which the marketing companies will pay the refineries will be 5 per cent less.

Reliance, which sells around four million tonnes of liquid fuels to the public sector oil companies and about four million tonnes of LPG, is expected to lose around Rs 500 crore.

MRPL, which has just been turned around by ONGC, is expected to lose around Rs 400 crore during the remaining seven months of the current fiscal.

Chennai Petroleum Corporation (CPC), which is a subsidiary of IOC, also figures among the losers and is expected to take a hit of Rs 200 crore.

Both IOC and HPCL have registered an over 50 per cent increase in their net profit during the first quarter of the current fiscal despite holding the price line because of refining margins that exceed $5 per barrel.

BPCL had seen a 50 per cent dip in profits as it has a smaller refining capacity, which accounts for only 30 per cent of its profits.

The gains of IOC and HPCL due to the customs and excise cuts will to an extent be offset by a reduction in the high refining margins. BPCL will be relatively a larger gainer.

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