With global crude oil prices showing a southward trend, public sector oil companies want tariff protection to be raised in the next budget to the pre-August 2004 level of 7 per cent.
Chennai Petroleum Corporation Ltd (CPCL), a group company of Indian Oil, in a detailed representation to the petroleum ministry has said two successive duty cuts in August 2004 and February 2005 had brought down the duty protection level to less than 2 per cent. "This has resulted in reduction in the refining margin by more than $2 per barrel at the current price level," it said.
Refining margins for state-owned oil companies are currently hovering around $5 to 6 per barrel.
CPCL contended that profitability of the oil companies would be eroded if the 7 per cent duty protection was not restored as below-normal-price sales and subsidies would impact on the companies’ bottomline. It pointed out that CPCL bore a subsidy of $0.75 per barrel on liquefied petroleum gas and kerosene, while it subsidises petrol and diesel to the tune of $1.3 per barrel.
Apart from this, the oil company has proposed that depreciation for plant and machinery may be restored to 25 per cent from the current level of 15 per cent. "The projects undertaken by the oil companies involve huge capital outlay. Reduction in depreciation rates significantly increases the tax liability of the company," CPCL stated.
The public sector company said freight on coastal movement of products cost it $0.4 per barrel while central sales tax resulted in an additional $0.4 a barrel. Moreover, there are state levies like turnover and purchase tax.
"There was inadequate compensation for the investment cost incurred on Euro-III equivalent grade fuel products. Purchase of low sulphur crude to meet the stringent emission norms also put pressure on the bottomline," it stated. Lower sulphur crude is costlier than high sulphur crude by $4 to $5 per barrel.