Oil and gas exploration companies such as ONGC, Cairn India and Oil India could get further relief from paying the Oil Industries Development (OID) cess if the finance ministry agrees to the recommendation made by the standing committee on petroleum and natural gas to halve the impost.
In his last Union Budget, finance minister Arun Jaitley modified the levy of the cess on domestically produced crude oil from 4,500 per tonne earlier to a 20% (ad valorem) impost.
While this has resulted in savings of Rs 1,150 per tonne at the crude price of $35/barrel for the oil companies (at exchange rate of Rs 67 to dollar), halving the levy would enhance the savings.
“The committee strongly desires that the issue of current ad valorem cess of 20% proposed in the Budget should be raised by the ministry (petroleum) with the ministry of finance, so that the oil cess is brought down preferably in the range of 10%,” said the 12th report submitted on May 3 by the standing committee on petroleum & natural gas.
The panel has made the recommendation keeping in mind the volatility in crude oil prices. However, the committee said if the crude oil rates in the international markets rise, the burden of cess on the upstream oil companies such as ONGC and OIL will increase. “At the price point of $50/barrel and at the exchange rate of Rs 67 to every dollar, the burden will be even more than the previously fixed cess of Rs 4,500 per tonne, which would defeat the purpose of rationalising the cess and give relief to upstream PSUs,” it explained.
The benchmark Brent crude oil price fell nearly 44% to an average of $48.73/barrel in FY16 against $86.6/barrel in FY15.
The standing committee also said it fully supports lowering of ad valorem rate making it more practical and simpler to administer the cess. The government had levied a cess of Rs 2,500 a tonne in 2005-06 when crude was hovering around $60/barrel. The duty was hiked to Rs 4,500 a tonne in 2012 when crude oil prices skyrocketed to touch $100/barrel.