Crude oil producers, grappling with the effects of a slump in the global market, expect incentives, especially rationalised tax policies, from the Union budget to be presented on February 1.
Oil and gas exploration and production by ONGC and Cairn India in Barmer and Jaisalmer districts took a hit in the last two years. The state government got ₹6713 crore as royalty from oil production in Barmer in 2013-14, but only ₹1495 crore in 2015-16 till November. “Any support from the Centre will boost the revival of the local economy,” said an official.
According to the union ministry for petroleum and natural gas, crude oil production during April-December last year was 27045.34 TMT (thousand metric tons) -- 3.23% lower than that of the corresponding period in 2015.
Dependence on oil and gas imports has increased due to fall in production. India imported 197.5 million MT of crude oil in the first 11 months of 2016, up 10.5% compared to 2015. “We need to increase our domestic oil and gas production and reduce import dependence. I have set a target to reduce import dependence by 10% by 2022,” Prime Minister Narendra Modi told the Petrotech conference in New Delhi last month.
India failed to get the required investment to stem production decline. “High production tax impedes higher investments and production,” said an industry source.
In the 2016-17 budget, finance minister Arun Jaitley had converted the ₹4,500 a tonne fixed levy on crude oil to 20% ad valorem charge (based on the value), with an aim to reduce the impact. Oil producers claimed they pay more than ₹4,500 a tonne following a surge in crude prices to around USD 54 a barrel.
Producers want the finance ministry to reduce the cess to 8% of the oil price. The Oil Industry (Development) Act, 1974, provides for cess on domestically produced crude oil. Cess incurred by producers is not recoverable from refineries; hence, it forms part of oil production cost.
The cess was levied at ₹60 per tonne in July 1974. When crude oil prices increased to over USD 100 per barrel, the cess was increased to ₹4,500 per tonne in 2012.
In a letter to the finance ministry, the Petroleum Federation of India (Petrofed) said, “India needs investments to increase domestic production and meet PM’s vision of 10% import reduction by 2022…Investments in Indian upstream oil and gas sector have reduced… However, high cess impedes investments.”
Cess puts domestic crude oil producers at a disadvantage vis-à-vis imported oil that does not attract duties. “This levy is against the spirit of Make in India and needs an amendment. India happens to be the only country globally, which levies two sets of production taxes - royalty & cess -- which results in higher costs,” the letter said.
PetroFed has demanded that cess be reduced from 20% to 8 % to “ensure an efficient sharing of tax burden between oil producers and GOI…”