Petroleum Minister S Jaipal Reddy has opposed the recent hike in cess paid on domestic crude oil production and has asked Finance Minister Pranab Mukherjee to roll it back as it would affect the countrys crude oil output.
Reddy has argued that the sharp increase in cess from Rs 2,500 to Rs 4,500 per tonne along with an extra burden on upstream national oil companies (NOC) in fuel subsidy would drastically lower the surplus cash required for investment in Enhanced Oil Recovery (EOR) projects to increase the current oil flow rate.
In a letter dated March 23,Reddy said the increase in cess would raise the crude production cost by $6 a barrel which NOCs such as Oil & Natural Gas Corp and Oil India Ltd would have to bear without passing on to the refineries. ONGCs annual profitability would be impacted by Rs 4,500 crores and that of OIL by around Rs 800 crores.
The cost of production of crude oil is continuously increasing with the increase in international crude prices. In case of ONGC and OIL,major production is from their aging oil fields in northeast and Mumbai High. These fields now require major investments towards EOR applications to increase production, he wrote.
With the two contributing $56 a barrel towards their share in under-recoveries suffered by state-run oil marketing companies (OMCs),Reddy said that they would have to bear 37.91 per cent of the OMCs losses estimated at Rs 1,39,000 crores during fiscal 2011-12,instead of 33 per cent that they paid in previous years.
Further,ONGC and OIL have already planned huge investments of Rs 1,65,000 crores and Rs 19,000 crores towards exploration and production during the 12th Five Year Plan, he added.
Such sharp increase in cess along with enhanced share in under-recovery burden shall result in decline in the profitability and will adversely affect their cash flow required for investments envisaged for the 12 FYP, he argued. I request you to kindly reconsider your proposal for increase in cess on crude oil.
Mukherjee in his Budget proposals for fiscal 2012-13 almost doubled the cess as a measure of indexation since it was last revised in Budget 2006-07. That raised a hue and cry with NOCs demanding that the higher cess be adjusted with the fuel subsidy they bear.