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Tuesday, October 20, 2020

Finance Ministry turns down proposal to cut cess on crude output

Experts noted that given the recovery in the price of Brent crude, oil-producing companies were not expecting any relief on oil cess from the government.

Written by Karunjit Singh | New Delhi | Updated: October 19, 2020 9:59:46 am
Currently, all domestic oil producers pay an oil cess of 20 per cent on all crude oil output. (File)

In a blow to domestic crude oil producers, the Finance Ministry has rejected a proposal by the Petroleum Ministry to reduce cess on domestic crude production, according to government officials.

Currently, all domestic oil producers pay an oil cess of 20 per cent on all crude oil output. Upstream companies had sought relief on oil cess noting that low international crude prices had made it difficult for them to even meet operational expenses. The price of Brent crude fell to a low of $19.33 per barrel in April on the back of low demand due to the Covid-19 pandemic and a price war between oil-producing countries. The pride of Brent crude has since recovered and stabilised at between $40-45 per barrel over the past three months.

“The Finance Ministry has rejected the proposal citing budgetary constraints,” said a government official who did not wish to be quoted. According to the official, the proposal sent by the Petroleum Ministry had pitched for 2-3 different rates of oil cess from 10-20 per cent based on the prevailing price of crude oil in the international market. The union government has budgeted inflows of Rs 16,500 crore from oil cess for the current fiscal.

Experts noted that given the recovery in the price of Brent crude, oil-producing companies were not expecting any relief on oil cess from the government.

An industry analyst, who did not wish to be quoted, said that ONGC had in its analyst call mentioned that it was not expecting any fiscal relief from the Centre in the current pricing scenario considering the fiscal pressure on the government due to low revenues.

Debasish Mishra, partner at Deloitte India, noted that the upstream oil and gas sector needed fiscal relief in the current pricing situation. “To achieve the Prime Minister’s vision of reducing import dependency by 10 per cent, upstream players in India would need fiscal incentive to survive the pricing situation in the global crude market due to Covid.”

The Centre has hiked the excise duty on petrol by Rs 13 per litre and on diesel by Rs 16 per litre since the beginning of the year to shore up flagging revenues due to economic slowdown caused by the Covid-19 pandemic. Central excise duty currently accounts for 45 per cent of the the price of diesel and 40 per cent of the price of petrol in the national Capital.

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