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Oil Ministry seeks revision of under-recovery bill

The Finance Ministry expresses concern over rising under-recoveries of state-owned oil marketing companies, report Deepak Joshi & Gaurav Choudhury.

business Updated: Dec 12, 2007 20:36 IST

The Finance Ministry has expressed concern over rising under-recoveries of state-owned oil marketing companies and has called for a revision of the method of calculating under-recoveries.

The ministry is also concerned about the rather flat growth in central excise revenue from petroleum products despite major buoyancy from other products in the current financial year.

The under-recoveries on petroleum products are calculated by taking import and export parity prices in a 80:20 ratio as proposed by the Rangarajan Committee. This has allowed the government to reduce the revenue loss that was earlier calculated on the basis of import parity price. Apart from this, the government's woes have been mitigated by the strengthening of the rupee against the dollar.

Petrol is being sold at a loss of Rs 8.74 a litre, diesel at Rs 9.92 per litre, kerosene Rs 20.53 a litre and LPG at a loss of Rs 256.35 per cylinder.

The government has already decided to compensate the public sector oil companies by issuing oil bonds to the tune of 42.70 per cent of under-recoveries. The upstream oil companies would bear 33 per cent of the under-recoveries of Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum. The three oil marketing companies are projected to lose Rs 69,753 crore on sale of petrol, diesel, LPG and PDS kerosene.

Central excise duty on petrol and diesel was reduced to 6 per cent from 8 per cent per litre in February this year. A further excise duty cut is being planned as a part of package to address the concerns of high crude prices that in recent weeks have nearly touched $100 per barrel.

The ministry has pointed out that central excise collections during this financial year so far have grown only by 7.5 per cent against a budgeted growth of 10.2 per cent. Significantly, while excise revenue from non-petroleum products have grown by 12.8 per cent, revenue from petroleum products have lagged behind, growing by a meagre 1.5 per cent.

“The sluggish growth in petrol revenue has been a matter of constant concern, especially as this sector contributes nearly half of the total central excise revenue,” a source said.

Oil companies have pointed out that an increase of one rupee a litre in petrol price would cut under-recoveries by Rs 90 crore a litre and the same on diesel would slash the loss by Rs 360 crore a month.

If the government increases kerosene price by the same amount, losses would come down by Rs 95 crore per month and if LPG prices were raised by Rs 10 a cylinder, they would come down by Rs 58 crore per month. A reduction in excise duty by Re 1 per litre on petrol and diesel would reduce the under-recoveries of oil companies by Rs 1,380 crore and Rs 5,270 crore respectively.