The Telegraph
Since 1st March, 1999
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Double-barrelled win for govt
- Petroleum companies turn shock-absorbers and dividend machines

New Delhi, March 2: The government continues to lean heavily on the public sector oil companies, both to mop up resources and to hold the price line of petroleum products, especially LPG and kerosene.

Reliable sources say that although the current budget has, on the face of it, made an allocation of Rs 8,116 crore as a subsidy for petroleum products, over Rs 2,000 crore of this sum will go to finance the unpaid gap in LPG and kerosene subsidy for 2002-03.

While the government had collected Rs 2,600 as special dividend recently from upstream and downstream oil majors, ostensibly to finance the subsidy on LPG and kerosene, the money was retained to prune the fiscal deficit.

The subsidy on LPG has been calculated at Rs 70 per cylinder. However, with international market prices shooting up and no increase in the domestic price of LPG or kerosene since March 2002, the subsidy element has shot up to Rs 130 per cylinder. The subsidy on kerosene is Rs 2.50 per litre. This extra cost is being borne by the oil companies.

As matter of official policy, oil firms were supposed to be getting the market price for their products. However, political compulsions have forced the government to ask the oil majors to hold the price line for LPG and kerosene and go in for a limited increase in the price of petrol and diesel.

The average price of the Indian basket of crude oil imports has increased steadily from $ 29.94 per barrel in mid-January to $ 31.67 per barrel for the second fortnight in February.

The oil firms claim that they have absorbed a substantial portion of the price hike and passed on less than Re 1 per litre for diesel and petrol to consumers. The remaining 50-paise hike is due to the cess for highways.

Any rise in the price of crude imports snowballs since a 10 per cent customs duty has to be paid on the value of the imports. Similarly, any price rise in petro-products goes up due to the ad-valorem rate of excise duty.

The petroleum ministry has been pushing the case for quantity-specific customs and excise duties. This would assure a fixed amount of revenue for the government and, in a situation of rising prices, not put an extra burden on the oil companies or consumers. This is the system followed in advanced countries such as Japan and the US.

However, the finance ministry sees easy pickings in the ad-valorem duties, which soar during rising prices.

The average cost of the Indian basket of crude oil imports had gone up by about $ 4.5 per barrel to $ 26.3 during the first nine months of this fiscal compared with the average price of $ 22.75 per barrel that the country paid last year.

According to petroleum ministry sources, the country has already had to shelve out an additional Rs 7,400 crore extra for crude oil imports during the first nine months of this fiscal compared with the same period of last fiscal. Around 62 million tonnes of crude were imported during this period.

About 5 million tonnes of LPG were imported during the first nine months at a cost of around Rs 6,000 crore. The rise in the import bill on this account has been around Rs 600 crore during the last fiscal.

With an additional duty of Rs 50 per tonne on both domestic and imported crude for the special calamity contingency fund introduced in the budget, the oil firms will have fork out over Rs 500 crore.

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