The Hindu Business Line : Oil India gets exemption on ST, transportation tariff

New Delhi May 21 Oil India Ltd (OIL) can look for a slightly healthier balance sheet now, with the Petroleum Ministry relieving the company from absorbing the sales tax and transportation tariff for the crude oil sold to refiners.

In other words, the refineries would now have to take the burden of sales tax and transportation tariff for the crude bought from OIL in 2006-07.

The move is expected to send positive signals to investors and would also prove beneficial for the company's IPO expected later this year. What OIL absorbed towards sales tax and transportation charges during 2006-07 was close to Rs 215 crore, which would have brought a dent in its bottom line had the relief not been granted.

OIL, which produces all its crude oil from North East, is paid only a free-on-board price. In 2006-07, the company produced 3.11 million tonne of crude. The refineries that purchase crude oil from OIL include Indian Oil Corporation Ltd for its Digboi and Guwahati refineries, Bongaigaon Refinery and Petrochemicals Ltd, and Numaligarh Refinery Ltd.

The company has been seeking this exemption from the Ministry to help avoid dual subsidy burden, which it has been suffering till now.

Dual subsidy

A company official told Business Line that OIL subsidises the oil marketing and refining companies twice — first by sharing their under-recoveries for selling the petroleum products below the cost price, and secondly by absorbing the sales tax and transportation tariff, which refineries are not paying to OIL for crude oil sold. This had taken a toll on its net profit in 2006-07. The company's profit for 2006-07 was estimated to be lower by almost Rs 95 crore at Rs 1,600 crore.

In fact, even ONGC has been receiving sales tax revenue and transportation charges for 95 per cent of crude oil it sells in the country other than in the Northeast, the official added.

With the transportation tariff and sales tax becoming the liability of the refineries, there is some respite to the company, he said. Now IOC and NRL will share the burden together and lessen the impact on OIL's bottom line. However, OIL will continue to share the burden of under-recoveries.

The company's share of under-recoveries during the fourth quarter of 2006-07 was close to Rs 558.75 crore. Of its total subsidy share of Rs 1,993.75 crore during 2006-07, it has paid Rs 1,435.75 crore for the first three quarters.