Review 80% hike in crude cess: Panel

A parliamentary panel has told the government to reconsider the 80% increase in the cess on crude oil production to R4,500 a tonne as it has reduced the resources available with oil producers to expand their operations. The cess was increased in the Union Budget for 2012-13.

The increase in the cess has added to ONGC’s outgo under the head by R4,500 crore a year, and for Oil India the outgo is R810 crore.

“By this increase, these oil companies will be deprived of resources for their own utilisation and investment targets,” the standing committee on petroleum and natural gas said in its report tabled in Lok Sabha this week.

The panel suggested it was essential to give the oil producers relief as they are already burdened by the financial assistance that they give to oil marketing companies IOC, HPCL and BPCL in keeping auto and cooking fuel affordable to the consumer. Now, the government and the upstream companies bear the subsidy on sensitive petroleum products like diesel, kerosene and LPG, while a part of the losses are absorbed by the retailers.

The panel also told the government that it should work out a fuel subsidy sharing formula so that retailers would know at the beginning of the financial year, how much they have to contribute to keep auto and cooking fuel affordable to the consumer.

The three oil marketing companies have an unmet under-recovery or losses from selling fuel below cost of R56,647 crore for the last quarter of 2011-12. The oil ministry has asked the finance ministry to give about R40,000 crore in addition to the R45,000 crore the finance ministry has already sanctioned for the year. Oil marketing companies are awaiting a final decision by the finance ministry before they announce their annual accounts for 2011-12.

“The government should inform the amount of under-recovery that would be borne by each oil marketing company at the beginning of the financial year so that each company can plan their finances better,” the panel told the government.

On the other hand, upstream companies have traditionally been contributing about a third of the total losses incurred by IOC, HPCL and BPCL.

However, in the recent past, it has been raised to about 38% as losses from selling fuel below cost rose due to the high global oil prices.

In the first three quarters of 2011-12, upstream firms provisionally met 38% of the R97,313 crore losses incurred by oil marketing companies. In the full fiscal, retailers’ under-recovery rose to R1,38,000 crore.