New Delhi, March 1: Gail (India) Ltd expects to take a Rs 70 crore hit in its petrochemicals business due to the 5 per cent reduction in customs duty on products such as polymers since the company will have to cut prices to face foreign competition.

Other companies such as Reliance and Haldia Petrochemicals are also expected to lose out due to the same reason.

The Indian companies are currently pricing their products on an import parity basis and with the cost of the imported goods coming down by 5 per cent, they will have to scale down their prices. This, in turn, will erode their earnings.

Chidambaram?s budget has reduced customs duty on polymers from 15 per cent to 10 per cent and that on petrochemicals such as ethylene, propylene and butylene from 10 per cent to 5 per cent.

Gail, which also produces LPG, expects some respite due to the abolition of the excise duty on cooking gas. The company expects to save around Rs 40 crore due to the waiving of duties on LPG, which will help offset part of the bigger cash-drain on its petrochemicals business.

Gail, however, does not expect to be affected by the service tax on pipelines as it intends to pass on the tax to its customers.

Power plants and fertiliser units, which are the main consumers of natural gas, will have to foot a higher transport bill.

A Gail official told The Telegraph that the company would be forced to raise the cost of transporting the gas through its pipeline network from Rs 1,150 per thousand standard cubic metres to Rs 1,265 due to the 10 per cent service tax.

The ministries of power and fertilisers have already locked horns with the petroleum ministry, which is backing the demand of ONGC, OIL and Gail for an increase both in the price of natural gas and the transport charges.

The power and fertiliser ministries are of the view that the price of natural gas cannot be linked to crude as unlike petrol and LPG it is not derived from oil.

Their contention is that the price of natural gas should be linked to that of coal, which is the alternative source of fuel.

Similarly, they have also been complaining that the cost of transporting the gas charged by Gail is already too high and there is no case for increasing it. The passing on of the service tax is expected to fuel the inter-ministerial debate further.