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Oil import bill down, cut in crude import duty proposed - Views on News from Equitymaster
 
 
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  • Jan 22, 2000

    Oil import bill down, cut in crude import duty proposed

    The petroleum ministry has requested the finance ministry for a 10% reduction in the import duty of crude oil. Further, the oil import bill is estimated to be lower by around $ 2 bn following an increase in the country’s refining capacity.

    The request for a cut in the crude oil duty cut has been made in order to avoid an increase in the domestic price of diesel. As per a cabinet decision in September 1997 the domestic prices have to be aligned with international prices every 60 days. These have risen from $ 162 per tonne to $ 182 per tonne over the past three months.

    The import duty on crude is 20% and a duty reduction would compensate for an increase in the basic price of diesel. While all the refineries will be beneficiaries of the move it would benefit the Reliance group the most since it now needs to import only crude. It has integrated forward right upto the fabrics stage.

    Further, the oil import bill is estimated to be around $13 bn whereas it could have $ 15 bn had the new refining capacity not been in place. The refining capacity has gone up by almost 40 million metric tonnes to 110 million tonnes.

    It is primarily the coming on stream of Reliance refinery with a capacity of 27 million tonnes that is the reason for the 60% increase in refining capacity.

    What is more important is to consider whether current refining margins justified the setting up of the new capacities. The government will have to continue giving tariff protection or else the newer private sector refiners would have to face huge losses once the Administered Price Mechanism is abolished.

     

     

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