Energy Industry
| |
Budget Measures |
|
Propose to adhere to the original schedule of dismantling the APM. The Minister for Petroleum will indicate the roadmap for deregulation of prices in the petroleum sector. However, no announcements were made on deregulation in marketing of transportation fuels. |
|
50% of cess on petrol and diesel will be utilized for funding building of rural roads and national highways. The funds are to be shared for these purposes.
|
|
Naphtha, LNG and LSHS will be linked to international prices for fertilizer units.
|
|
Compressed natural gas (CNG) will also be charged 8% excise duty in line with excise duty on LPG and kerosene. These fuels have not been included in the central excise duty structure of 16%. Excise duty on diesel, which was reduced to 12% has been restored to the earlier level of 16%. Also, special excise duty of 16%, which had been removed on motor spirit (petrol) has been restored.
|
|
Service tax of 5% has been imposed on vehicle service stations.
|
|
LNG has been exempted from countervailing duty (CVD).
|
| |
Budget Impact |
|
APM will be dismantled by March 2002. Consequently, pricing of controlled products (motor spirit, diesel, kerosene, ATF and LPG) will be market determined. Any subsidy on LPG and kerosene will be transferred to the Central Government revenue account. The current designated marketing companies are expected to benefit, as realizations will be based on market price. This could also indicate the break up of the Oil Coordination Committee (OCC). However, there has been no mention of a supervisory body.
|
|
The higher excise duty on fuels will add to the excise bill of marketing companies. With high fuel prices the Government relaxed excise duty to reduce impact on consuming industries. As fuel prices have declined the Government has reverted to the earlier excise duty rates. Consequently, off-take by consuming industries could be adversely impacted as is witnessed in FY01.
|
|
IOC, BPCL and HPCL own 28%, 60% and 50% of their retail outlets. These outlets will be charged 5% service tax. Consequently, impacting the tax liability of the companies.
|
| |
Industry wish list |
| |
Rationalisation of import duty. The industry wishes for a import duty differential between crude and refined products in the region of 10%. Although duty on transportation fuels is high (25%) duty on other refined products is much lower, which reduces the average differential. Consequently, they expect the import duty on crude to be further reduced from the present 15%.
|
| |
A road map on how the Government plans to cut down on the subsidies in the sector. Further, post deregulation, whether transactions in the oil pool will be accounted for directly in the revenue account of the Government.
|
| |
Indication on whether the complete deregulation schedule will be abided to. Further, spell out the policy on disinvestments in the energy sector.
|
|
| |
| |
Key Positives |
|
|
Key Negatives |
|
With the government likely to dismantle the APM sooner than later, it is quite possible that the refining companies could integrate backwards to upstream while oil exploration companies could forward integrate into the downstream sectors.
|
|
|
Crude oil prices have more than doubled over the twelve months from a level of $ 15 per barrel to over $ 30 per barrel but the price of the controlled products viz. LPG, Diesel, Petrol, Kerosene and Air turbine fuel have not been raised commensurately. (The last hike was across the board in August '00.) This has impacted the margins of the refining companies adversely.
|
|
The rise in the marketing and distribution margin itself could more than compensate for the decline in refining margins once the APM is dismantled.
|
|
|
Demand for petroleum products in the first half of FY01 has shown negative growth of 1% as compared to a growth of 7.2% in the corresponding period of the previous year.
|
|
Excise duty on petrol and diesel has been reduced. This should help boost demand.
|
|
|
|
|
How was this sector impacted by Budget 2001?
|
