Bit of Lahiri in oil, not enough

When finance minister P Chidambaram outlined the duty restructuring of the petroleum sector, in keeping with the recommendations of the Lahi...

When finance minister P Chidambaram outlined the duty restructuring of the petroleum sector, in keeping with the recommendations of the Lahiri Committee report, he was quick to add that these measures are revenue neutral and further there will be no change in the retail prices.

Revenue neutral it may have been for the finance minister, but petrol and diesel prices, though will not change in March, might go up in April. And this is mainly due to the fact that ad-valorem specific mix of excise duties announced in Budget 2005 have increased the excise duties on petrol by around Rs 1.50 per litre while that on diesel by Rs 0.50 per litre. This coupled with 50 paise per litre additional cess on petrol and diesel will put a pressure on the prices in the future.

However, oil firms said that they will not increase prices of the two fuels in March and will wait till April to take a final decision. In the meantime, the government might be able to work out a stable pricing policy, which the petroleum minister Mani Shankar Aiyar had talked about, and further interntional crude oil prices might come down thus bringing down the price of the Indian basket which is at present ruling around $44 per barrel. The cut in excise and customs duty on LPG and kerosene to nil will also not translate into any gains for the consumer as they were insufficent to cover for the loss of Rs 133 on every LPG cylinder and Rs 7.9 on every litre of kerosene incurred by the oil firms currently. However, the cut in customs duty on crude oil and petroleum products and raising of excise duty on petrol and diesel will reduce the gains of refineries while maintaining government revenue. The proposed changes will also reduce the effective rate of protection of refineries to 2.79 per cent from the current 3.77 per cent.

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According to industry experts, after taking into account the customs duty cut to 10 per cent from 15 per cent, changing excise duty to a mix of ad-valorem and specific, warranted an increase of around Rs 2.50 per litre. Similarly for diesel it warranted a Rs 0.65 a litre increase both for import parity prices.

BPCL CMD, S Behuria said that while excise is up, this along with the cess will put a burden which if allowed to be passed on to the consumers on petrol and diesel will be alright for the oil firms. On LPG and kerosene and crude there will be some relief. Integrated oil firms will have some benefits, while refinery margins will go down”, he added.

IOC director (Finance) P Sugavanam told the media that the prices of petrol and diesel will not be increased till April and as a result of this, the industry would lose Rs 450 crore in March. “We will pass on the Rs 0.50 per litre increase in road cess in April,” he said. Abhimanyu Arora, professor at the University of Petroleum said that present restructuring may be “revenue nuetral but is definitely not price neutral”.HPCL officials also clarified that the situation is far from being rosy.