Mixed bag for the oil sector

Finance Minister P Chidambaram's Budget proposals have little to offer to the consumers of petrol and diesel companies.

But the Budget has some respite for the oil marketing companies and those looking at the gas pipeline business.

Industry experts termed the Budget as a mixed bag.

The benefits expected by reduction in central sales tax by one per cent would be offset by increase in education cess proposed, the oil companies argued.

The proposal to cut the ad valorem component of excise duty on petrol and diesel from 8 per cent to 6 per cent is unlikely to result in a cut in the retail selling prices of these two products.

The duty cut would have translated into 47-48 paise per litre in petrol and diesel price.

The government had reduced the prices in February despite oil companies losing Rs 1.35 a litre on diesel and this proposed cut is unlikely to be passed on to the consumer.

After the price cut, under-recovery on diesel has increased to Rs 2.35 a litre.

S V Narasimhan, director (finance), Indian Oil Corporation Ltd said the cut would mean that the company's under-recovery on the two products would decline by Rs 1,250 crore (Rs 12.5 billion) annually.

He said the duty cut may not translate into an increase in profit for IOC, as the size of oil bonds issued to the oil marketing companies may also come down.

Private sector players like Reliance Industries Ltd and Essar Oil Ltd said that the excise duty cut would result in bringing parity in retail pricing of these two products vis-à-vis the public sector companies.

"The reduction in duty will result in marginal relief. This too has been partly eroded by increase in education cess, which adds to the cost of feedstock for refineries," said A N Sinha, managing director, Essar Oil.

Petroleum Minister Murli Deora said Chidambaram has kept his promise and reduced excise duty on petrol and diesel.

"When we reduced the prices of petrol and diesel on February 15 by Rs 2 and Re 1 per litre respectively, the finance minister had committed to partly meet the reduction through changes in duties," Deora said.

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