X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Energy: Transfer from one pocket to another - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 14, 2002

    Energy: Transfer from one pocket to another

    Last week, through an ordinance, the Government amended the Central Excise Tariff Act allowing it to impose excise duty without any upper limit. The immediate fall out of these powers were felt by the petroleum industry by the very same weekend.

    The Government hiked excise duty on petrol and diesel, which was accompanied, surprisingly, with lower retail prices and without adversely impacting the eternally ominous oil pool account (OPA) deficit. Common sense would tell us that a hike in duties ideally should have led to higher retail prices and/or higher OPA deficit. But through a sleight of hands or more appropriately through the complexity in industry operations the Government has been able to pull-off this feat.

    At time of announcing the administered pricing mechanism (APM) dismantling schedule in 1998 the Government deregulated the refining sector, which was done to attract private investments in the industry segment. Subsequently, refineries conducted their operations on import parity prices, which are set by the Oil Co-ordination Committee (OCC). The marketing and pricing of controlled products (petrol, diesel, kerosene and LPG) continue to be regulated with complete deregulation, as per the schedule, expected in April '02.

    (Rs/litre) Retail Price   Ex-storage point prices   Excise Revenues
    Petrol Existing Revised Change Existing Revised Change Existing Revised
    Delhi 28.9 27.5 -4.8% 21.9 14.5 -33.9% 7.0 13.0
    Mumbai 31.9 30.8 -3.5% 24.2 16.2 -32.9% 7.7 14.6
    Chennai 30.7 29.7 -3.0% 23.2 15.7 -32.6% 7.4 14.1
    Kolkata 29.2 28.0 -4.2% 22.1 14.7 -33.4% 7.1 13.3
     
    Diesel Existing Revised Change Existing Revised Change Existing Revised
    Delhi 17.2 17.1 -0.5% 14.8 14.2 -3.8% 2.4 2.8
    Mumbai 20.8 20.7 -0.4% 17.9 17.3 -3.7% 2.9 3.5
    Chennai 18.7 18.6 -0.3% 16.1 15.5 -3.6% 2.6 3.1
    Kolkata 17.5 17.5 -0.4% 15.1 14.6 -3.7% 2.4 2.9

    At the retail level, subsidies are primarily offered on kerosene and LPG, which is not entirely cross subsidised by petrol. Therefore, during times of high product prices, the OPA runs a deficit. Over the past three months, oil prices have fallen by 30% from above $26/ barrel to $20/ barrel. Consequently, final product prices have also weakened. This has allowed some breathing space to the OPA leading to a lower deficit, as compared to the initially estimated OPA deficit of Rs 120 bn for FY02.

    On the other hand, as per reports, in the first six months of FY02 the Central Government had already hit 54.5% of its fiscal deficit target of Rs 116 bn. With a weak business cycle, revenue collection of the Government is likely to have got hit. Consequently, the centre had to determine new avenues of raising revenues. Taking advantage of weaker prices of energy sources leading to lower OPA deficit (not part of fiscal deficit) the Government is mopping up some of these OPA funds to reduce the fiscal deficit burden and meet its budget estimates (4.7% of GDP).

    The table above indicates the revised estimated refinery prices for petrol and diesel. The move has a compensating effect, which has enabled marginal reduction in retail prices without affecting the beginning year OPA deficit estimates. As per reports, the move is likely to accrue an additional Rs 16 bn to the Government. Had the excise duty not been revised the OPA deficit would have been lower by a similar amount.

     

     

    Equitymaster requests your view! Post a comment on "Energy: Transfer from one pocket to another". Click here!

      
     

    More Views on News

    GAIL: A Good Show (Quarterly Results Update - Detailed)

    Mar 27, 2017

    GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.

    ONGC: Higher Realisations on Crude Support Performance (Quarterly Results Update - Detailed)

    Mar 17, 2017

    ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.

    Oil India Ltd: A weak quarter (Quarterly Results Update - Detailed)

    Jan 24, 2017

    Oil India Limited announced results for the quarter ended September 2016. The company has reported an 6.5% and 7.8% Year on Year (YoY) decline in sales and net profit respectively during the quarter.

    GAIL: A Robust Quarter (Quarterly Results Update - Detailed)

    Dec 3, 2016

    GAIL (India) Ltd has announced results for the quarter ended September 2016. The company has reported 16 % year on year (YoY) decline in sales, while bottom-line grew 180% YoY.

    ONGC: Lower Write-offs Support Performance (Quarterly Results Update - Detailed)

    Nov 3, 2016

    ONGC has announced results for the quarter ended September 2016. The company has reported 10.3 % year on year (YoY) decline in sales, while bottom-line grew 6.3% YoY.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE OIL & GAS


    Aug 24, 2017 02:59 PM

    S&P BSE OIL & GAS 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS