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Wednesday, June 04, 2008

Petrol up by Rs 5; diesel up by Rs 3; LPG up by Rs 50

Petrol prices have been hiked by Rs 5 per litre, diesel by Rs 3 per litre and LPG price hiked by Rs 50 per cylinder.

PV Bhide, Revenue Secretary at the announcement of the oil price decision said, "We have been requested by the Ministry of Petroleum and Natural Gas for a reduction in customs duty and excise duty on crude oil and petroleum products. This was to enhance the realisation of the oil marketing companies. While there are tremendous demands on the revenue especially for programmes and schemes in the social sector, it has been decided to make certain duty changes in customs and excise.

These duty changes will result in an estimated loss of revenue of about Rs 22,660 crore for the 10-month period remaining this year. The composition of these changes are - customs duty on crude will be made nil from 5%. Customs duty on HSD and petrol will be reduced from 7.5% to 2.5%. Customs duty on other petroleum products will be reduced from 10% to 5%. Finally, excise duty on HSD and petrol will be reduced by Re 1 per litre each. So, Re 1 on petrol and Re 1 on diesel.

The total effect of all this is, Rs 15,500 crore is the customs duty reduction on crude; Rs 500 crore customs duty results in the reduction on petroleum products. The excise cuts will cause us a loss of Rs 6,660 crore."

The price hike will be effective from midnight today.

The Secretary, Petroleum and Natural Gas, Shri MS Srinivasan elaborated on the duties and taxes:

"We are coming to duty and taxes portion. We have requested the Ministry of Finance to give thought to some duty and price cuts with a view to partly mitigating the adverse impact on oil companies as a result of huge under recoveries. Although there is tremendous demand on the revenue especially for programmes in the social sector, the Finance Ministry has agreed and decided to make certain duty changes in customs and excise. These duty changes will result to an estimated loss of revenue of Rs 22,660 crore for the remaining 10 months of this current fiscal.

Following are the duty changes:

1) Reduction in customs duty on crude from the present 5% to zero

2) Reductions in the customs duty on diesel and petrol from the present 7.5% to 2.5%.

3) Reductions in customs duty on all other petroleum products from including ATF from 10% to 5%.

What it really means is that it is an accost of 5% reduction in customs duty on crude and products and reduction in excise duty on petrol and diesel by Rs 1/ litre. The total annual reduction in under recovery as a result of this would be Rs 21,000 crore of for the public sector oil marketing companies and it is Rs 22,660 crore for the Ministry of Finance for the whole oil sector.

As the result of the duty changes that is excise duty and customs duty reductions by Ministry of Finance the under recoveries for the oil marketing companies will come down by roughly Rs 22,000 cr this year."

Meanwhil Oil Minister, Murli Deora spoke exclusively to CNBC-TV18 saying that a roll back of the fuel price hike is not on the cards. He added that the price hike was unavoidable. He also said that the he would ask for a SLR status for oil bonds but the RBI disagreed with the proposition.

“We have been requested by the Ministry of Petroleum and Natural Gas for a reduction in customs duty and excise duty on crude oil and petroleum products. This was to enhance the realisation of oil marketing companies. While there are tremendous demands on the revenue, especially for programmes and schemes in the social sector, it has been decided to make certain duty changes in customs and excise. These duty changes will result in an estimated loss of revenue of about Rs 22,660 crore for the 10-month period remaining this year," said PV Bhide, Revenue Secretary, Ministry of Finance.


"Customs duty on crude will be made nil from 5%. Customs duty on HSD and petrol will be reduced from 7.5% to 2.5%. Customs duty on other petroleum products will be reduced from 10% to 5%. Excise duty on HSD and petrol will be reduced by Re 1 per litre each. The excise cuts will cause us a loss of Rs 6,660 crore," he added.


Murli Deora and MS Srinivasan at the press conference:


Q: Do you think there is likely to be a rollback because the Left has not come on Board, you have admitted that you have spoken with Prakash Karat and he is opposed to this kind of a hike, they have opposed to all kinds of hike.


Deora: No, it doesn’t matter, they will come when they will realize; first of all I must say they have not supported this. But sooner or later they'll realize that is the only solution available; there is no other alternative. We explained them how much losses they are making, what will happen to the oil companies, what will happen to the refineries, which are coming in Paradip (Orissa), in Bina in Bhatinda (Punjab) the three big refineries are supported by the three oil companies. So if they lose money there is no money too.


Q: What the Left is saying? They are planning a nationwide agitation and this is what you have said, they have come out very strongly at this kind of a hike?

Deora: We will explain to them and they will get out of the demonstration. Everything will be taken care of.


Q: The Prime Minister said that he is likely to be giving the reason for this hike?

Deora: Yes, he is addressing the nation today at 8 pm.


Q: There are other allies on Board; how have you convinced them that this is a requirement?

Deora: Most of the people may not say that they support. But in their heart they are supporting because there is no other solution, there is no other alternative available.


Q: Is there likely to be a rollback, should we expect some kind of a relief?

Deora: Forget there were rollbacks.

Q: When will the price hike be effective from?

Srinivasan: From midnight tonight.

Q: How much will other recoveries come down by?

Srinivasan: Rs 2,45,305 crore from that due to Finance Ministry's steps under recoveries will come down by about Rs 22,000 crore and with the price revision now announced, to take effect from midnight tonight the under recoveries will come down by an additional Rs 21,123 crore this year.

Taking into account the upstream contribution as against Rs 26,000 crore last year, this year we are proposing that upstream sharing of the subsidiary burden be hiked to Rs 45,000 crore as against Rs 26,000 crore last year.

As against absorption of Rs 16,000 crore by the three oil marketing companies last year, this year we are proposing that they absorb Rs 20,000 crore and this leaves a balance of Rs 1,35,000 core. Suitable provisions will be made by the Ministry of Finance as agreed in today’s meeting for oil bonds on a QoQ basis.

Q: On percentage of bonds?

Srinivasan: The bond requirement now stands at after adjusting all Rs 2,55,000 crore minus Rs 22,000 crore by way of Finance Ministry minus an additional Rs 21,123 crore by way of price revision, minus another Rs 40,000 crore by way of upstream sharing minus an additional Rs 20,000 crore to be absorbed. It stands at roughly Rs 1.35 lakh crore. It has been decided that bonds to the extent required will be provided for.

Q: On addressing liquidity problem?

Srinivasan: We are dealing in two specific oil companies functioning here, one is the liquidity position or cost crunch and the other is the profitability. The chairman of IOC was referring to the companies that were running out of cash and hence they may have to limit their imports of crude oil which will automatically lead to lesser availability of finished products.


Now with a view to addressing to the liquidity problem effectively, RBI and oil companies have entered into an arrangement yesterday, as per which the bonds will be disposed off by the oil companies in favour of the RBI and RBI will place adequate or required number of dollars in the hands of the oil companies subject to a maximum of Rs 1,000 crore a day, so that imports will continue as per the requirement of oil companies.

This will also solve the problem of rupee depreciation, which normally occurs whenever oil companies go and purchase dollars in the open market for meeting the crude oil requirements. Here RBI takes the advance, gives them the dollars then RBI enters the secondary market and engages in open market operations. So this way the operation is smoother now and liquidity problem is overcome.

Q: On oil bonds and statutory liquidity ratio (SLR) status?

Srinivasan: The main purpose of all this arrangement is that they get liquidity. The main objective of SLR is grand liquidity, so as long as liquidity is obtained I think that's all that matters really.

Q: On inflation?

Srinivasan: If under recoveries are covered in full, the inflation impact is assessed debt around 4.7%. Here the price hike proposed is only Rs 22,000 crore which is the direct payment which the consumer has to make. So one could work out the percentage it will be 0.5 – 0.6%.

Q: On long-term strategy?

Srinivasan: The long-term strategy to keep examining the possibility of reflecting market prices locally so that the economy doesn’t come to a halt and this has to be done stage wise. We will be revisiting the issue after 4-5 months.

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