London/New Delhi: The UK treasury is considering a one-time tax on energy and utility companies, secretary of state for business John Hutton said on Friday, after record oil prices boosted profit at BP Plc. and prompted Centrica Plc. to raise electric and gas bills.
In New Delhi, Oil and Natural Gas Corp. Ltd (ONGC) chairman and managing director R.S. Sharma said the UK’s decision to consider a windfall tax had reinforced his own advocacy of such a levy. But in India, the issue has been mired in a welter of political, business and family rivalries centred on Reliance Industries Ltd (RIL), which runs the world’s third largest refinery.
Tax advocates: UK’s business secretary John Hutton (left) proposes to impose a tax that ONGC’s R.S. Sharma has been lobbying for in India. Photograph of John Hutton by: Suzanne Plunkett/Bloomberg
Hutton said the government must balance the need to help poor families cope with higher energy prices with efforts to keep Britain a good place for companies to invest in. The comment contradicts a remark by chancellor of the exchequer Alistair Darling in June, ruling out a windfall tax.
In India, ONGC’s Sharma has suggested scrapping the system of subsidy sharing, under which the oil explorer shares the burden of compensating state-run refiners for losses caused by selling petroleum products below cost. He said an existing oil industries development cess, along with a windfall profit tax, should be used to compensate them for the losses.
“Imposing a windfall profit tax is logical and there is nothing wrong with it,” Sharma said on Friday. “If somebody is earning windfall profits, the government has every right to enforce this tax.”
Samajwadi Party (SP) leader Amar Singh has demanded the imposition of a windfall profit tax of up to 50% on refiners such as RIL. The SP has become an ally of the ruling United Progressive Alliance, which survived a 22 July trust vote in Parliament over the Indo-US nuclear deal with the party’s support. Singh is known to be close to Anil Ambani, the estranged younger brother of RIL chief Mukesh Ambani.
Petroleum minister Murli Deora couldn’t be reached for comment. An RIL spokesman didn’t respond to emailed questions. Imposing a windfall tax is problematic in India. Such a levy would be discriminatory if levied only on private sector refiners, while the public sector is already losing money from selling fuel at below production cost.
Oil and gas sector analysts are not in favour of this tax. “Anything on this line will affect the private sector’s confidence in the country’s business environment,” said a New Delhi-based energy sector analyst, who did not wish to be identified due to the sensitive nature of the issue.
Gonzalo Vina works with Bloomberg and Utpal Bhaskar is with Mint.