The petroleum sector, for long, a ward of the government, may be seeing light at the end of the tunnel on reforms with the increase in customs and excise duty on crude and petroleum products. But it may well turn out to be a mirage, given the opposition from rival parties and some within the ruling coalition.
“There are clear-cut signs of deregulation in the auto fuel sector, which will have a positive impact on private sector marketing companies,” said Naresh Nayyar, MD and CEO of Essar Oil, a victim of the government’s subsidised fuel policy.
Pranab Mukherjee said he was restoring the basic duty of 5% on crude petroleum, 7.5% on diesel and petrol and 10% on other refined products. He also enhanced the central excise duty on petrol and diesel by Re 1 per litre. Petrol prices will rise by Rs 2.71 a litre and diesel by Rs 2.55. Opposition parties walked out of Parliament in protest.
Another indication that the government is moving towards reforming the sector is that it cut subsidy on petroleum products to Rs 3,108 crore next fiscal, from Rs 14,954 crore this year. Probably, Mr Mukherjee is \factoring in the subsidy for the poor man’s fuel — kerosene — and not for petrol and diesel mostly used by the affluent.
While a section of the industry is taking the levy of taxes as a reform measure, some say it may be just a way to enhance revenues. Also, the payment of subsidies in cash instead of oil bonds has led to the belief that the government may have no option but to let oil companies raise prices in line with international crude oil prices, if they have to survive. Crude prices have more than doubled in the past year, but are off their all-time highs.
While the imposition of duties will fetch the government revenue of Rs 18,680 crore, it would hardly address the chronic problem of oil marketing companies (OMCs) such as IndianOil and Hindustan Petroleum, which bleed due to subsidies. These companies, which in the past had contributed as much as 25% of tax receipts, may report a loss of Rs 45,000 crore this fiscal.
“Prices of fuel will go up, but this will not help the oil companies or reduce their losses as the price rise is due to higher levy,” a marketing official at IOC said.
The government will be left with no option, but to free pump prices of petrol and diesel, said a senior oil ministry official who did not want to be identified.
The finance ministry budgeted Rs 12,000 crore as cash compensation for the three state-owned OMCs for 2009-10 against their demand of Rs 31,000 crore, just for selling cooking fuel below cost.
The taxes may have been raised, but the reform could be a long way off. “I am not the only one who has to decide (on reform)... we have to consult a lot of others,” petroleum minister Murli Deora told reporters.
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