The Hindu Business Line : Crude spike: Oil producers may have to share additional revenues

The recommendations
The panel has excluded the refiners from the levy
This tax would be in lieu of the Govt’s present upstream support mechanism for PSU oil marketing cos

Richa Mishra

New Delhi, Aug. 5 Oil producers may have to share the additional revenues earned by them as a result of sharp increase in oil prices, if the suggestions of a high-powered committee headed by Mr B.K. Chaturvedi, Member, Planning Commission, get accepted.

The committee, which was set up to examine the financial position of oil companies, is understood to have proposed that such a tax be levied on the producers from pre-New Exploration Licensing Policy (NELP) regime, sources told Business Line. However, the refiners have been excluded from such a levy.

This tax would be in lieu of the existing upstream support mechanism being adopted by the Government to cushion the impact of high crude prices on public sector oil marketing companies (OMCs). The three OMCs – Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation – together are expected to lose Rs 2,05,740 crore this fiscal.

The pre-NELP regime has two categories – nomination blocks and production sharing contracts (PSC) blocks. While the nomination blocks are mainly held by ONGC and Oil India, under PSC blocks there are private players such as Cairn, and Reliance Industries Ltd among others.

As regards levy of such a tax on the exploration blocks given under the New Exploration Licensing Policy (NELP) rounds, the committee is understood to have proposed that the applicability of such a tax could be studied from the legal and commercial angle. The regime already provides ‘windfall taxes’ to the Government in the form of profit petroleum.

It has also suggested a suitable package which includes oil bonds, some price revision at a slow pace, and upstream contribution along with 100 per cent export parity pricing mechanism for petrol, diesel, PDS kerosene, and LPG.

This export party mechanism will replace the current trade parity structure (weighted average of import and export prices in the ratio of 80:20), which would take out the notional costs that are included into import-parity prices like freight, insurance or landing costs, resulting in reduced prices for marketing companies at the refinery gate. It is also expected to reduce Government’s subsidy burden.

The committee has proposed prices of products to be benchmarked to an average of prevailing price at Singapore, Europe and the US, with a small adjustment for quality, sources said. The committee has also suggested doing away with import duty on petrol and diesel from the current 2.5 per cent to zero. The committee felt that the fuel subsidy should only be for below poverty line (BPL) section of society.

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