The Hindu Business Line : Oil marketers not enthused

WHILE the stock markets celebrated the Finance Minister's announcements on customs duty cuts on crude oil, petrol, diesel, cooking gas and kerosene, the oil industry was busy counting its losses.

The oil refining and marketing companies plan to ask the Government to reconsider high excise duty levies.

Indian Oil, BPCL and HPCL expect to collectively lose close to Rs 400 crore on higher excise duties on petrol and diesel and fall in refining margins in March 2005 alone.

The companies say that they stand to lose close to Rs 4,000 crore on an annualised basis.

"We have to go back to the Government. We have to ask them to reconsider the high excise duties levied on us," said Mr P. Sugavanam, Director (Finance), Indian Oil, India's largest oil refiner and retailer.

Mr Chidambaram has increased excise duties on petrol by Rs 5 a litre and diesel by Rs 1.25 a litre. Even light diesel oil saw an additional cess of Re 1 a litre. (Add another 50 paise a litre increase in the road development cess of Rs 1.50 a litre.)

Although the companies will gain more than Rs 8,000 crore from customs duty cuts, they will shell out close to Rs 11,600 crore on higher excise duties.

"What hurts is that we are not even allowed to raise prices to compensate our losses," said Mr Sugavanam.

A senior BPCL official called the Finance Minister's remark about "revenue neutral" levies for the oil sector a "window dressing". He said that the excise losses will nullify savings on lower LPG and kerosene subsidies.

Although the cess will be passed on to the consumers in the next price change, it will not be as easy to pass on the overall burden.

Our Kolkata Bureau adds: ONGC will register a net gain of close to Rs 120 crore from the Union Budget 2005 proposals with regard to indirect taxes, after taking into consideration the benefits on corporate tax, deferred tax liability, change in depreciation rate and additional depreciation. The changes in corporate tax rates alone will leave a positive impact of roughly Rs 510 crore.

Company sources point out that preliminary estimates suggest that ONGC will lose close to Rs 500 crore owing to reduction in crude import duty to five per cent and its resultant impact on the domestic crude prices, as per the applied formula. The company will also lose close to Rs 180 crore on the removal of customs and excise exemptions for domestic LPG and kerosene.

Our Chennai Bureau adds: The Chennai Petroleum Corporation Ltd's Managing Director, Mr S.V. Narasimhan, has observed that the company could take a hit of at least Rs 70 crore because of the Budget.

Standalone refiners such as CPCL and KRL, which produce petroleum products and sell to oil marketing companies such as IOC and BPCL take a beating when customs duties are brought down.

Mr Narasimhan said that CPCL could suffer a 7-8 per cent reduction in gross refinery margin, which translates to around Rs 100 crore a year.

However, there would be some gains in terms of lower value of inventory, because customs duty on crude oil has also been reduced from 10 per cent to 5 per cent.

Overall, CPCL could suffer a shaving of about Rs 70 crore on account of the Budget proposals.

Mr Narasimhan, however, pointed out that next year CPCL would operate on a larger scale, its expansion project having been completed. The company's profits on the enlarged operations would be higher, he said.

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