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DEC 18 2012

Good news for oil cos: Lower crude oil cess likely in next Budget

  • Economic Times, ET Bureau / Hyderabad
  • Created: Tue 18th DEC 2012

The coming Union Budget may bring some relief for upstream oil companies ONGC and OIL, which have to burden the greater share of oil subsidy, by reducing crude oil cess. The finance ministry is considering a proposal to revise the cess on crude oil from R4,500 per metric tonne to the pre-2012 level of R2,500 per metric tonne. The oil ministry has already flagged the issue for urgent consideration.

Highly placed sources said that given the adverse impact of higher cess on these companies, the finance ministry may include it as part of budgetary proposals for 2013-14 after analysing its impact on revenues. The standing committee on petroleum and natural gas has also recommended that higher taxes and subsidy are making it difficult for upstream companies to plan their capex.

The additional revenue from the increase in crude cess this year from three upstream companies, ONGC, OIL and Cairn India, stands at around R7,000 crore. Considering the huge revenue implications, sources said the finance ministry would be forced to look at other options in the sector for taxation or reduce cuts in crude cess.

The government increased the cess on crude petroleum in the 2012-13 Budget to shore up its revenue and offset the loss on account of a cut in excise and import duty on petroleum products. The decision, however, has had an adverse impact on the financial position of ONGC and OIL.

“It is very positive and something that we have represented to the oil ministry. (We) hope it is done,” Ananth Kumar, director finance, Oil India said.

It was estimated that the increase in cess resulted in an outflow of R4,500 crore for ONGC (it paid R5,600 as cess in 2011-12 and is likely to pay about R10,400 crore as cess this fiscal) and R810 crore for OIL (R1,000 crore last fiscal and R1,800 crore this year) according to their current crude production levels. Cairn India, the private sector oil explorer, also paid crude cess of R1100 crore in 2011-12 and it is is likely to increase to R2,800 crore this year.

Moreover, upstream companies have already shared the burden of under-recoveries for the April- December period (R30,296 crore in case of ONGC and R4,478 crore in case of OIL) .

The largest state-run oil explorer ONGC expressed its requirements of net crude oil price realisation of $55/barrel to meet its capital expenditure plans for the current financial year. The company plans to invest over R33,065 crore during the current fiscal in exploration and production of oil and gas. It reported a 31.8% decline in net profit at R5,897 crore for the second quarter of 2012-13 due to a high subsidy payout to oil marketing companies.

“The higher subsidy payout is a matter of concern. We have taken up the matter with the cabinet secretariat and also with the Prime Minister. If we continue to pay higher subsidy, our cash reserve, which at the starting of the fiscal was R12,000 crore, will drop to nearly R4,500 crore by the end of fiscal,” Sudhir Vasudeva, chairman, ONGC, had said earlier.


Cairn India Oil ONGC Budget

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