OMCs stop taking Rs 1/litre hit due to subsidy on fuel

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Published: January 3, 2019 1:33:58 AM

Excise revenue from petro products fell 5.6% on-year in FY18 to `2.29 lakh cr due to `2 cut in excise duty on auto fuels in Oct, 2017.

On being specifically asked that if, say, as per formula used by OMCs to arrive at the cost of petrol, it came at `68 per litre, are the consumers being charged `68 or `67 by absorbing `1, Surana said OMCs are charging “`68”.

The oil marketing companies have stopped absorbing the Rs 1 hit they were bearing on each litre of diesel and petrol sold starting October 4.

“Today’s prices are commensurate with international prices. The Rs 1 was absorbed by OMCs because the prices were high which was a burden for consumers. Today, the prices are lower and the issue of high prices is not there. The price reduction of `1 happened on a day and then the price remains as per the formula,” said HPCL CMD MK Surana on Wednesday while talking to reporters on the sidelines of an industry event here.

On October 4, 2018, a little over eight years after petrol prices were deregulated — and four years after diesel — the Centre reintroduced price control on auto fuels by asking the public sector oil marketing companies (OMCs) to absorb `1 on every litre of petrol and diesel they sell, while the government cut excise duty by `1.50 per litre on the fuels to give relief to consumers.

It was a time when crude oil prices were above $86 a barrel and retail prices — which are linked to international product prices — reached all-time highs. OMCs calculate daily fuel prices based on the trade price parity (TPP) taking into account fuel prices of the last 15 days. The crude oil prices are hovering around $51 a barrel at present. On being specifically asked that if, say, as per formula used by OMCs to arrive at the cost of petrol, it came at `68 per litre, are the consumers being charged `68 or `67 by absorbing `1, Surana said OMCs are charging “`68”.

“The measure was required because prices were up and it was said then also that it is a temporary measure. As of now, that requirement is not there,” said Sanjiv Singh, chairman, Indian Oil. Singh, however, added that OMCs do not plan to recover the losses incurred due to the reduction in prices.

The measure is estimated to cost the Centre `10,500 crore in the second half of FY19 in terms of excise duty collections, while the three OMCs — Indian Oil, BPCL and HPCL — would lose about `4,500 crore after taking into account the lower corporate taxes they will pay as their revenues and pre-tax profits will fall by `7,000 crore. The Centre has not increased the excise duty since then.

The Centre’s excise revenue from petroleum products fell by 5.6% on-year in FY18 to `2.29 lakh crore due to a `2 cut in excise duty on the auto fuels in October, 2017 while the VAT collections by the states rose by 10.6% to `1.84 lakh crore in FY18.

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