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Rationalise crude, petro product duties: Naik

Pradeep Puri

The petroleum ministry has asked the finance ministry to rationalise duties both on crude oil and petroleum products to contain the burgeoning oil pool deficit in the current financial year.

These measures should be initiated before the administered pricing mechanism is dismantled by March 2002.

Minister for petroleum and natural gas Ram Naik has suggested to finance minister Yashwant Sinha that customs duties on crude oil and major petroleum products be reduced to 5 per cent and 15 per cent respectively, as approved by the Cabinet in November 1997 for the last year, 2001-02.

He has said that excise duties on petrol and diesel should be kept at the pre-budget level of 16 per cent and 12 per cent respectively.

Moreover, according to Naik, the Oil Co-ordination Committee should be allowed to withdraw its deposit of Rs 44.29 billion from the public account. The minister has said that further corrections in the Cabinet approved duty structure can be effected in the budget proposals for 2002-03.

Naik's suggestions to the finance ministry, before it announces the firm schedules for dismantling the APM by March 2002, include reductions in the subsidy level on PDS kerosene and domestic liquefied petroleum gas, liquidating the accumulated oil pool deficit and meeting the post-APM subsidies on domestic LPG and PDS kerosene and the freight subsidies for remote and far-flung areas from the fiscal Budget.

Naik said that crude oil prices in the international market, after remaining at moderate levels of around $24-25 a barrel for about two months, have firmed up again.

"The price of the Indian basket of crude is currently around $28 a barrel.

The oil pool deficit was around Rs 125 billion at the end of March 2001. It is estimated to increase to around Rs 160 billion by the end of March 2002 with the average crude oil price during 2001-02 remaining at around $25 a barrel and payment to Oil and Natural Gas Corporation and Oil India Limited for indigenous crude oil kept at $16 a barrel."

The minister, however, said that indications are that the average crude oil price is likely to remain at over $25 a barrel, which could mean a higher oil pool deficit by March 2002 than estimated.

At a crude oil price of $25 a barrel, the subsidy levels on PDS kerosene and domestic LPG are estimated at 45 per cent and 41 per cent respectively. As per a Cabinet decision of November 1997, these are to be brought down to 33.3 per cent and 15 per cent.

"To achieve this, retail selling prices would need to be increased by about Rs 1.50 a litre and Rs 95 per cylinder of LPG. These increases would be higher if the crude oil prices in the international market remain higher than $25 a barrel," the minister said.

Moreover, to meet post-APM subsidies, the budgetary provision (at a crude oil price of $25 a barrel), would need to be around Rs 80 billion per annum.

In addition, around Rs 10 billion is required to be reimbursed to the oil marketing companies for the sales tax under-recoveries, on the sale of aviation turbine fuel both past and present, to foreign airlines. The budgetary provision would need to be higher if the oil prices rule higher than $25 a barrel, Naik said.

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