'FinMin move may sound death knell for oil refineries'

Feb 06 2013, 00:07 IST
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SummaryFinance Ministry's move to drastically change the way petrol and diesel are priced may sound the death knell for some of the domestic oil refineries, an industry association has warned.

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 per annum in 1998 to over 215 million tons and is expected to grow to over 310 million tons by the end of 12th Five Year Plan. Private sector has invested over USD 25 billion in the refining industry.

"Customs duty on crude has progressively been reduced from 15 per cent to zero and that on petrol and diesel has gone down from 25 per cent to 2.5 per cent. There is nil duty protection on products like LPG, kerosene, ATF, naphtha and FO/LSHS for fertilisers," it said.

C Rangarajan in his report on 'Pricing and Taxation of Petroleum Products' in 2006 had made out a case for some effective protection to domestic refineries as the business was cyclical in natural characterised by very volatile prices.

Also, the spread between crude (raw material) and products prices fluctuates widely and there have been instances when diesel prices had lower than crude.

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