'FinMin move may sound death knell for oil refineries'

"When the primary raw material is on import parity basis, the FOB export parity pricing for products would clearly be extremely unfair to the refineries," it said.

Making out a case against export parity pricing, Petrofed said Indian refiners ar subjected to a freight cost on crude oil vis-a-vis West Asian refineries which is at least USD 05-0.8 per barrel.

In addition, energy costs are higher since energy equivalent to 7 to 8 per cent of throughput is consumed in processing and has to be met by either crude oil based products of imported liquid gas (LNG) whereas the west Asian refineries met such energy needs from surplus gas.

Besides, Indian refineries incur heavy demurrage on import of crude oil due to constraints in infrastructure at Indian ports and also pay VAT/CST at the rate of 2 to 5 per cent on purchase of crude oil from domestic producers which is not a pass through.

It said for additional resources, the governmnt can consider raising excise duties which are a direct pass through.

"The older refineries of PSUs may not be able to cover the cost of refining operations and will be further strained with lack of capital so vitally required for capacity addition or product quality upgradation," Petrofed said adding refining industry was passing through a downward margin cycle that may result in some inland refineries becoming sick.

Private refineries may resort to exporting their full production unless compensated for CST/coastal freight.

Petrofed said India's refining capacity has grown from a modest 62 million tons

... contd.