New Delhi: Petroleum and natural gas minister Murli Deora, under attack from the ruling United Progressive Alliance’s (UPA) new ally the Samajwadi Party (SP), on Monday said he had no powers to deal with the issues being raised because they fall under the purview of the ministries of finance and commerce, headed by P. Chidambaram and Kamal Nath, respectively.
SP general secretary Amar Singh has accused Deora of protecting the interests of some companies and taken up this issue with Prime Minister Manmohan Singh and Congress president and UPA chief Sonia Gandhi.
In a letter to the Prime Minister, Singh has demanded the cancellation of the export oriented unit (EoU) status awarded to Reliance Industries Ltd’s (RIL) refinery at Jamnagar. The SP leader also called for the imposition of a windfall profit tax of up to 50% on private sector refineries such as RIL.
Passing the buck? Murli Deora
The SP’s position is that Deora’s “mismanagement” of the petroleum ministry is evident in the fact that he has not imposed “a windfall tax” on private sector oil firms and not banned the export of petroleum products.
“I do not want to comment on what Amar Singh (SP leader) has to say. Both the issues raised by him are not even under my ministry. It is for the finance and commerce ministries to take action,” Deora told Mint.
The Mulayam Singh Yadav -led SP holds the key to the UPA’s continued reign. The Left Front, which supported the UPA without being part of the government, has threatened to withdraw support should the government go ahead with the civilian nuclear deal with the US.
Heedless of this threat, the government has pushed ahead with the deal and the Left Front plans to withdraw its support to the UPA om Tuesday morning.
The UPA has 228 members in the Lok Sabha and needs 272 to stay in power. The SP has 39 members in the Lok Sabha.
Queries mailed to the public information officers at the ministries of finance and commerce remained unanswered. A spokesperson for RIL declined comment on the issue.
The finance ministry would have to be involved in the imposition of any “windfall” tax, which is usually levied on unnaturally high profits arising from steep and sharp increases in prices of raw materials.
The commerce ministry is responsible for deciding the extent of duties on imports and exports and on banning imports or exports of specific products.
RIL runs India’s largest private oil refinery. It, and other refiners such as Essar Oil Ltd have made significant profits out of importing crude, refining it within the country, and exporting products such as petrol and diesel.
In 2007-08, RIL’s profits rose 28% over the previous year to Rs15,261 crore (excluding exceptional items) largely because of the company’s refining operations.
Currently, public sector oil- refining and marketing companies have a dominant share of the fuel retailing business in the country, but they have to sell products at government-mandated rates, which are usually lower than their cost of production.
Private sector firms present in the fuel retailing business aren’t bound to sell at these rates although they have no choice but to do so because their competitors, the state- owned firms, sell fuel at lower rates.
RIL and Essar Oil have gotten around this by shutting most of their petrol stations and focusing on exports. Export oriented firms also gain because they do not have to pay the 5% duty on imports of crude oil that was scrapped last month.
RIL currently has a refining capacity of 33 million tonnes per annum (mtpa). A new 29mtpa refinery is expected to be operational shortly.
The SP also wants the government to broadbase the oil subsidy-sharing mechanism and make private sector companies such as RIL and Essar Oil contribute towards the losses, or so-called under-recoveries of public sector oil marketing companies, which will be around Rs2.45 trillion in 2008-09.
The country’s refining capacity is expected to increase by 62% to around 241mtpa by 2012. India’s current refining capacity is around 149mtpa.
One expert said it wasn’t accurate to term the huge profits being made by private refineries as “windfall”.
“There is nothing calledwindfall profits for the refining sector, and refineries only earn profit out of their own operating efficiency. Windfall profitsexist in the upstream (oil producing) sector. Not giving export sops (incentives) under the EoU status may be okay, but banning exports has no logic to it. 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 thesensitive nature of theissue.