In order to provide cushion to the oil marketing companies and, perhaps, the public at large, the government may halve excise duty on petrol to Rs7 a litre from the current Rs14.45.
In order to provide cushion to the oil marketing companies and, perhaps, the public at large, the government may halve excise duty on petrol to Rs7 a litre from the current Rs14.45.
A move can be expected next week if the ministry of finance clears a proposal from the ministry of petroleum, two sources familiar with the developments said.
“Since crude oil prices are likely to touch $100 per barrel in the coming weeks, we are looking at reducing the taxes on petrol to control prices. We have also sent a proposal to scrap import duty on crude (currently at 5%),” said an official in the ministry of petroleum who is privy to government-level discussions.
Analysts see three possible implications of an excise duty cut:
First is, it instantly improves the balance-sheet of oil marketers, especially with some of them expected to go for follow-on public issues; that would mean better valuations and the government gets better prices for unloading its shares.
Secondly, if crude rises further to $100 or more, a reduction in excise gives cushion to oil marketers and they need not resort to a third and fourth round of price hikes.
Thirdly, and this is the least probable, they say, the government may pass on the decreases, at least partially, to the consumers in the form of rollback of prices. That is the least probable because the government needn’t have hiked petrol prices on Saturday in that case, analysts said.
While the ministry of finance was not in favour of reducing the excise and the import duty on petrol and crude oil earlier, a sudden increase in the crude oil prices in the international market has put immense pressure on the government.
Oil marketers have increased the prices of petrol two times within a month — by Rs3 on December 15, 2010, and Rs2.50 on January 16 - drawing the ire of the public and opposition parties.
However, an oil marketing company official said it is unlikely that the companies will reduce petrol prices because companies are still incurring losses - Re 1.20 per litre of petrol and Rs7.50 on diesel.
The gross underrealisation for the current fiscal is projected to be as high as Rs40,600 crore for IOC and Rs73,600 crore for all the public sector marketers together.
The government has almost called off the follow-on public offer (FPO) of Indian Oil Corporation as it was expected to post losses in the current quarter due to rising crude oil prices in the international markets.
Another public sector giant, Oil and Natural Gas Ltd, is slated to launch its float in the first week of March this year. A reduction in the prices of excise duty will help company reduce the subsidy it pays to the oil marketers.
“If the government cuts the excise duty, it will help us indirectly as our subsidy burden by the end of the year will reduce automatically. It will also help the consumers as the marketers will not have to increase prices again,” said a director in ONGC, who did not wish to be named.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}