The Telegraph
Since 1st March, 1999
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Oil boils in FM cauldron

New Delhi, May 23: The petroleum ministry has put the ball in finance ministry's court by scaling down its demand for an increase in petrol and diesel prices to Rs 2.50 per litre and Rs 1.30 per litre, respectively. This essentially adds up to the increase in excise duty and additional road cess introduced in the budget.

The petroleum ministry is reported to have taken the stand that oil companies will shoulder the burden of an increase in oil prices. However, the taxes and the extra cost of 25 to 30 paise per litre incurred in supplying better quality Euro II and Euro III fuels will be passed on to consumers.

The petroleum ministry has scaled down its demand of an over Rs 4-per-litre hike in the two transport fuels, making it clear that it is willing to bear its share of the burden to shield consumers. But the finance ministry would have to do its part to hold prices in check. The excise and cess have always been borne by consumers and it is not normal for oil companies to bear these levies.

Since the Left parties have taken a firm stand against any price rise, the petroleum ministry’s proposal is bound to increase pressure on finance minister P. Chidambaram to roll back the hike in excise duty and road cess.

The finance ministry has till now refused to listen to the petroleum ministry's pleas on reducing central levies so that there is an equitable burden sharing. This has resulted in oil companies having to bear the burden of the tax hikes as well.

The finance ministry has been claiming that the changes introduced in the budget are revenue-neutral. The petroleum ministry, on the other hand, has cited figures provided by the oil companies showing that they have paid more on account of excise and cess after the budget as the government has not allowed a price increase.

The petroleum ministry has pointed out that the reduction in customs duty on crude has benefited only the refineries. The oil marketing companies such as Hindustan Petroleum and Bharat Petroleum, which have small refining capacities, and IBP, which has no refinery at all, buy their products from other refineries. These companies have turned out to be net losers due to the excise and cess hike.

Similarly, Indian Oil Corporation, which has a large refining capacity, also has to buy products from Reliance refineries and lose money on these purchases.

The petroleum ministry has said oil companies will have to bear the 37-paise-per-litre increase in international prices of petrol and Rs 2.43-a-litre in that of diesel.

The ministry has also sought a Rs 20-per-cylinder hike in LPG and Rs 3-per-litre increase in kerosene prices to cut the sales losses of over Rs 100 per cylinder and Rs 10.31 a litre, respectively.

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