Energy Industry
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Import duty on crude reduced from 20 to 15%;
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Import duties on petrol and diesel decreased to 25% from the 30% earlier.
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Excise duty on LPG, petrol, kerosene remain at the current levels of 8%, 32% and 8% and were specifically exempt from the across the board rationalisation of the duty to 16%.
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The reduction in import duty on crude is the biggest reason for the net loss of customs duty to Rs 14.3 bn. This is because crude imports amount to more than 30 million tonnes and the price of crude has more than doubled to $30 per barrel over the last year.
The refineries will get a relief since the duty of crude has gone down. However, the fact remains that till the end product prices of products such as LPG, petrol, diesel, air turbine fuel are increased, the margins of the refineries will continue to remain under pressure despite the reduction in duties on crude.
However, there was no word about the decanalisation of crude imports, regulatory body for the oil sector as well as the dismantling of the oil sector.
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The duties on crude ought to be reduced to 10% (from 20% at present) and the duties on petroproducts (petrol, diesel, ATF) can be rationalised to 25% (down from 30%). This would also fit in with the time table for dismantling of the Administered Price Mechanism which has been laid down by the expert group. The expert group had recommended a duty reduction in crude to 5% and the duty on petro products to be rationalised to 15% by 2002.
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The industry also expects a meaningful increase in the retail price for LPG and possibly a small price increase in kerosene. This would reduce the subsidy in the petroleum sector (which stands at Rs 120,000 m at present. (Most of the kerosene is anyway diverted to towards diesel adulteration.)
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With the government likely to dismantle the APM sooner than later, it is quite possible than the refining companies could integrate backwards to upstream while oil exploration companies could forward integrate into the downstream sectors
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The rise in the marketing and distribution margin itself could more than compensate for the decline in refining margin once the APM is dismantled.
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Crude oil prices have more than doubled over the nine months from a level of $ 13 per barrel to over $ 27 per barrel but the price of the controlled products viz. LPG, Diesel, Petrol, Kerosene and Air turbine fuel have not been raised. (The last hike in diesel prices was in the month of October when these were raised by 40%.) This has impacted the margins of the refining companies very adversely.
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