Veerappa Moily asks FinMin to cut duties on branded petrol, diesel

 
Oil Minister M Veerappa Moily has asked the Finance Ministry to cut duties on branded petrol and diesel that offer better mileage and help cut fuel consumption.

Currently, the finance ministry levies higher excise duty on premium or branded petrol and diesel, making them costlier than normal or unbranded auto fuel.

Ever since their introduction in 2002, sale of premium or branded fuels have dwindled from a peak of 5.9 million kilolitres of diesel and 3.4 million kl of petrol in 2007-08 to a mere 0.45 kl of diesel and 0.09 kl of petrol in 2012-13.

"To enhance the fuel efficiency of new generation vehicles, specialised products (branded petrol and diesel) were launched by oil marketing companies in line with global trends and in keeping with the technological advancement in the automobile industry," the Oil Ministry said in a statement issued on completion of one-month of fuel conservation drive.

Moily has "requested the Ministry of Finance to review the duties levied on branded fuels to bring down the price differential so that consumers opt for branded fuel and this will help improve the fuel efficiency (by about 2 per cent) resulting in reduction in overall demand for petroleum products," the statement added.

The Finance Ministry had in 2009 Budget introduced new duties on branded fuels, which raised the differential between regular and branded fuel. "Due to this, sales of branded fuels have started sliding," the oil ministry's statement said.

Currently, the government levies an excise duty of Rs 1.20 per litre on normal or unbranded petrol while the same on branded petrol is Rs 7.50. Similarly, unbranded diesel attracts an excise duty of Rs 1.46 per litre while Rs 3.75 duty is levied on branded diesel.

While a litre of regular/normal or unbranded petrol costs Rs 72.45 in Delhi, branded petrol is priced at Rs 81.88. Similarly, normal diesel in Delhi costs Rs 52.54 a litre while branded diesel is priced at Rs 67.93.

Also, in September 2012, the government stopped providing subsidy on branded fuel, resulting in further dip in sales.

The current unbranded or normal diesel price of Rs 52.54 a litre includes a subsidy of Rs 9.20.

Moily says the reduction in excise duty by Rs 6.30 per litre on petrol and Rs 2.29 on diesel would not impact government revenues as current sale of branded fuels was "meager". But it would help in conservation as these fuels provide improved engine performance to yield 2 per cent savings in consumption.

Branded petrol and diesel is priced at a premium to regular fuel as additives put in them remove harmful deposits from engines, prevent corrosion, reduce emissions and lower maintenance costs.

Finance oil imports via ECBs, Chidambaram tells Moily PTI

	Finance Minister P Chidambaram has dubbed Oil Minister M Veerappa Moily's claim of cutting 3 per cent in oil import bill through fuel conservation as "ambitious" and has suggested that more oil imports need to be financed through overseas borrowings to help cut current account deficit (CAD). Moily is set to launch a six-week mega fuel conservation drive on Tuesday, attempted to taper demand, thereby cutting oil import bill by $2.5 billion. He had outlined the drive as well as other measures in a letter to Prime Minister Manmohan Singh and Chidambaram on August 30 saying his initiatives would help save $20 billion in foreign exchange outgo. Responding to Moily's letter, Chidambaram wrote back last week saying the projected savings of foreign exchange on account of various measures proposed are optimistic, official sources said. "While it is recognised that a conservation campaign might result in some reduction in petro-product consumption, the estimates of savings projected at 3 per cent, over and above the proposed crude imports cut, appear to be ambitious," the finance minister wrote. Stating that only $3.75 billion out of the total crude oil import bill of over $160 billion is proposed to finance through External Commercial Borrowings (ECBs), Chidambaram said the possibility of increasing the ECB mode of financing should be explored. India paid about $144.29 billion last financial year for importing oil and this year the outgo is projected at $160 billion. Besides fuel conservation, Moily wants increase in crude oil imports from Iran, which is paid in rupee and will help curtail foreign exchange outgo. Chidambaram also wanted oil companies to be "encouraged to import crude oil from Iran in greater quantities and their imports from Iran be reviewed regularly". As US and western sanctions have blocked all payment routes, India pays Iran in rupees in a Uco Bank branch in Kolkata. Buying more oil from Iran would mean it pays more rupees than dollars it has to pay to other sellers. Sources close to Moily said the conversation drive - which includes the minister and his officials using public transport at least once a week - is aimed at sending a message for conservation down the line. Also, it is aimed at bringing about change in people's mindset and to act as a catalyst in improving public transport system. The government, meanwhile, is grappling with high CAD, the gap between inflows and outgo of foreign exchange. It has set a target to bring down the CAD, which touched a record high to 4.8 per cent of GDP last financial year, to 3.7 per cent level in the current financial year. Moily's other measures included asking state-owned oil firms to keep crude imports at 2012-13 level of 105.96 million tonnes that will save $1.76 billion in foreign exchange. The mega fuel conservation campaign - to limit its consumption growth to last year's 4.1 per cent level - is projected to help prop up the rupee, which has slid sharply against the US dollar this fiscal.

Oil companies may soon start losing money on sale of petrol too

With the rupee falling to new lows against the dollar and the Syrian crisis pushing global crude oil prices higher, the concerns that Indian oil marketing companies might again start losing money on petrol sales are back.

According to estimates, if the companies are not allowed to raise petrol rates at least Rs 5 a litre by the first fortnight of September, they might begin to suffer underrecoveries on this decontrolled auto fuel, too -- for the first time this financial year.

Brent crude, which had closed at $116.27 a barrel on Tuesday, had risen to $118.04 a barrel at 6 pm on Wednesday.

The rupee closed near the 69-a-dollar mark.

In the second fortnight of this month, Brent has zoomed from $111.28 to the $118 level, while the Indian currency has slid around 12 per cent since the previous fortnightly price adjustment, on August 16.

Debashish Mishra, senior director, Deloitte India, said: “There’s a serious underrecovery threat on petrol, unless the government goes for a significant hike in prices.

The overall underrecovery on sale of sensitive petroleum products might cross Rs 2 lakh crore (Rs 2 trillion) this year.”

According to industry experts, for the second fortnight of this month, the average underrecovery on petrol now stands at around Rs 1.9 a litre.

“With the developments over the past few days, unless there is a hike -- even as a Parliament session is on -- the price hike required to offset oil firms’ losses would be Rs 5-6 a litre by September 15.

"This would lead to a situation like last year, when there was an underrecovery of Rs 1,100 crore on petrol,” said Emkay Global Financial Services’ Dhaval Joshi.

A senior petroleum ministry official, however, said the government was unlikely to go for a major increase in the prices of diesel, LPG or petrol before Parliament’s monsoon session was over.

The ministry is learnt to be examining the proposal to raise diesel price by more than the agreed 50 paise a month and even increase the price of subsidised domestic cooking gas.

But Petroleum Minister M Veerappa Moily had on Tuesday said: “At the moment, there is no proposal for a higher dose of increase in the price of diesel or an LPG price hike”.

According to oil companies, there had not been any underrecovery on petrol until the first quarter of the current financial year.

In June 2010, the government had effected a decontrol of petrol prices.

Diesel, on the other hand, is being decontrolled in a phased manner since January this year.

The Brent crude price has been rising over concerns that the US and UK might attack Syria, holding President Bashar al-Assad responsible for a chemical-weapon attack in Damascus.

The rise is alarming for India, as the composition of its basket represents the average of Oman and Dubai for sour grades and Brent for sweet grade in the ratio of 68.2:31.8.

According to a Bloomberg report, the Syrian crisis might lead Brent prices to zoom to $150 a barrel.

Emkay Global’s Joshi, however said: “It’s highly unlikely that Brent prices would go above $125 a barrel.”

For the second fortnight of this month, the under-recoveries on diesel, kerosene and LPG stood at Rs 10.22 a litre, Rs 33.54 a litre and Rs 412 a cylinder, respectively.

State-run Indian Oil, Hindustan Petroleum and Bharat Petroleum were together incurring a revenue loss of Rs 389 crore on a daily basis in selling fuel below market price.