Abolish crude oil customs duty to avoid price hikes: Oil cos

New Delhi, January 16 (PTI): Finding a Rs 5.50 per litre hike in petrol prices over the past one month insufficient to cover their under-recoveries on fuel sales, oil marketing companies have demanded the abolition of customs duty on crude oil to avoid a further increase amid spiralling international rates. Petrofed, an oil and gas industry body representing state-run firms like Indian Oil Corp (IOC) and private sector players such as Reliance Industries, has asked the government to reduce the customs or import duty on crude oil to zero from 5% at present.
It also wants the customs duty on diesel slashed to 2.5% from 7.5% at present, along with a reduction in the specific duty imposed on the most-consumed fuel in the country, a hike in prices of which would have cascading effect on already high inflation. State oil firms had yesterday announced a Rs 2.50-2.54 a litre hike in petrol prices. The hike -- which was necessitated by a jump in international crude prices to USD 98 per barrel -- came on back of Rs 2.94-2.96 a litre hike in petrol prices last month. However, the firms have not raised diesel prices so far, as the government still regulates the rates of the transport fuel.
“Eliminating the customs duty on crude and correspondingly reducing the duty on finished products would reduce the under-recoveries (revenue loss on selling fuel below cost) that are compensated by the government,” Petrofed said in a pre-Budget memorandum. “Instead of collecting customs duty on crude and later refunding the same as under-recovery compensation, the government may eliminate the duty on crude as was done earlier,” it said.
The average price of crude oil during 2008-09 was around USD 82 per barrel, when the duty on crude oil was reduced to 0%. The average price of crude oil during 2010-11 has already crossed USD 82.4 per barrel and may increase further. The abolition of customs duty on crude oil “would reduce diesel under-recovery by Rs 1.48 per litre,” it said. “Although the gross impact of reduction of crude duty would be Rs 15,880 crore, the net impact on the Budget would be limited to Rs 5,212 crore after taking into account compensation for under-recoveries of IOC, BPC and HPC by Rs 10,668 crore in a full year.”
Reduction of under-recoveries will improve the valuation of Oil and Natural Gas Corp (ONGC) and IOC prior to their follow-on public offering (FPOs). “Since reduction in duties would offset the subsidies that government has to provide on diesel, deregulation of diesel will also be feasible,” Petrofed said. State fuel retailers currently lose over Rs 7 on the sale of every litre of diesel. Petrofed has also demanded the abolition of the National Calamity Contingent Duty of Rs 50 per tonne imposed on imported crude oil as it is “a stranded cost for manufacturers.” “Levy of NCCD was introduced from 2003-04. Refineries have been paying Rs 50 per tonne as NCCD on import of crude oil. Further, education cess and secondary and high education cess is also payable on the NCCD,” it added.