New Delhi: If a panel appointed by the government to find ways to reduce the oil subsidy bill has its way, people will have to get used to monthly revisions in fuel prices.
And at least some oil producers in the country will have to pay a windfall profit tax.
The panel, headed by B.K. Chaturvedi, former cabinet secretary and member in the Planning Commission, has suggested that monthly revisions in fuel prices be used to bring local prices on par with international ones and a windfall profit tax be introduced on oil produced from fields awarded prior to the advent of the New Exploration Licensing Policy in 1999, according to PTI, which attributed these details to unidentified sources.
Mint could not immediately ascertain whether the report, which is yet to be made public, has these provisions.
The Chaturvedi panel was appointed to review the financial health of state-owned oil firms, which were labouring under the effects of having to sell fuel at a government mandated price that was lower than their cost of production. Indian oil marketing firms are projected to register losses of Rs2.45 trillion in 2008-09.
“We have submitted the report and have asked the Prime Minister’s Office and the ministry of petroleum and natural gas to make the report public. Once the report comes into the public domain, I will be happy to talk about it. I believe the process has been initiated to make it public,” Chaturvedi told Mint.
If the committee has suggested a windfall profit tax on blocks awarded before 1999, it would mean oil producers, including Cairn India Ltd (in Ravva field) and the British Gas (BG)-Reliance Industries Ltd (RIL) combine in the Panna-Mukta fields have to pay a windfall profit tax. It would also mean that refiners such as state-owned Indian Oil Corp. Ltd and RIL have been spared from the purview of this tax.
According to R.S. Sharma, chairman and managing director of Oil and Natural Gas Corp. Ltd (ONGC), the money collected through such means, in addition to an existing levy on fuel sales, could finance the country’s oil subsidy bill.
Currently, only state-run producers such as ONGC pay a part of their earnings from high oil prices towards financing fuel subsidies.
A Cairn Energy external spokesperson did not respond to queries; a BG India spokesperson declined comment.
Samajwadi Party (SP) leader Amar Singh had also 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.
While an RIL spokesperson declined comment, Sharma, who has been supporting the imposition of windfall tax on refining firms said: “I understand the new proposed system, along with oil industries development cess, will replace the existing ad hoc system of subsidy sharing. I am all in favour of it.” He had earlier 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 petro products below cost.
Total oil industry development cess collection till date is around Rs 72,750 crore. While the oil sector has so far used only about Rs900 crore, most of the cess amount is used to subsidize the fertilizer sector.