Burdened with the task of containing fiscal deficit, the finance ministry has rejected the oil ministry’s proposal to reduce the crude oil cess that could have given much-needed relief to upstream oil companies such as ONGC, OIL and Cairn.
The oil ministry had proposed to reduce the cess from R4,500 per metric tonne at present to R2,500 per metric tonne. The cess was hiked in 2012-13 Budget. North Block rejected the proposal, saying such as cut in the cess would lead to a revenue loss of around R10,000-R12,000 crore.
The oil ministry has already flagged off the issue for urgent consideration with the finance ministry as high subsidy burden is hurting the public sector companies.
The share of upstream companies in under recovery of oil marketing PSUs have been rising for past couple of years and increase in cess at this juncture is badly hurting their profitability. However, official sources have indicated that due to sluggish growth in tax revenue, the finance ministry is weighing all possibilities to improve it’s revenue collections and cut corners to reduce expenditure wherever possible.
Earlier, the standing committee on petroleum and natural gas recommended that higher taxes and subsidy is making difficult for upstream companies to plan out their capex.
The government increased the cess on crude petroleum in 2012-13 Budget to shore up its revenue and make up for the loss on account of a cut in excise and import duties on petroleum products. The decision, however, has had adverse impact on the financial position of ONGC and OIL as they now not only have to offer higher share of crude oil discounts to oil marketing companies but also give more to government as cess on realisation from sale of crude oil.
It was estimated that the increase in cess resulted in outflow of R4,500 crore for ONGC and R810 crore for OIL according to their current crude production levels.
Moreover, the upstream companies have already shared the burden of under-recoveries amounting to R30,0296 crore in case of ONGC and R4,478 crore by OIL for the April- December period. Cairn India is also estimated to contribute to government’s kitty by an incremental cess of around R2,000 crores with increase in the crude production.
The largest state-run oil explorer ONGC expressed its requirements of net crude oil price realization of $55/barrel to meet its capital expenditure plans for the current financial year. The company plans to invest over R33,065 crore during the current fiscal in exploration and production of oil and gas.
It reported a 31.8% decline in net profit at R5,897 crore for the second quarter of 2012-13 due to high subsidy payout to oil marketing companies.
?The higher subsidy payout is a matter of concern. We have taken up the matter with the Cabinet Secretariat and also with Prime Minister. If we continue to pay higher subsidy, our cash reserve, which at starting of the fiscal was R12,000 crore would drop to nearly R4,500 crore by end of fiscal.? Sudhir Vasudeva, chairman ONGC said.