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Bengaluru/New Delhi: The union government on Friday imposed a windfall tax on crude oil produced locally and also levied additional excise duty on exports of petrol, diesel and aviation turbine fuel (ATF) to temper domestic fuel retail prices and ensure availability.

While a cess of 23,250 per tonne has been imposed on crude oil, a special excise duty of 6, 13, and 6 per litre has been imposed on the export of petrol, diesel, and ATF respectively. Small crude oil producers with annual production of less than two million barrels have been exempted from this windfall tax.

This move to impose windfall tax comes in the backdrop of a sharp rally in global crude oil prices with Indian upstream explorers including Oil and Natural Gas Corporation (ONGC), Reliance Industries Ltd (RIL), Oil India Ltd and Vedanta's Cairn Oil & Gas among others selling crude to domestic refineries at par with international prices. Also, with exports becoming highly remunerative, some refiners are drying out their fuel retail pumps in the domestic market to export petrol and diesel to take advantage of high international crude oil prices. India’s oil import dependency over the years has risen, widening the trade deficit and putting further pressure on the domestic currency, which has slumped to its lowest against the dollar.

India’s large refiners include Indian Oil Corp. (IOC), Reliance Industries, Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL), and Nayara Energy Ltd (formerly Essar Oil). The move to impose special excise duty on exports comes following the shortage of petrol and diesel in several states including Rajasthan, Madhya Pradesh, Gujarat, Tamil Nadu and instances of long queues at petrol pumps.

“Crude prices have risen sharply in recent months. The domestic crude producers sell crude to domestic refineries at international parity prices. As a result, the domestic crude producers are making windfall gains. Taking this into account, a cess of Rs. 23250 per tonne has been imposed on crude. Import of crude would not be subject to this cess," finance ministry said in a statement on Friday, and added, “this measure would not impact crude prices or the prices of petroleum products and fuels."

Crude prices have risen sharply in recent months with Brent crude currently trading at $108.72 per barrel. This assumes significance given that India, the world’s third-largest oil importer imports around 85% of its crude oil requirement. Oil prices have been on a boil amid the Russian invasion of Ukraine over concerns of severe supply shortage.

“Also, to incentivise an additional production over preceding year, no cess will be imposed on such quantity of crude that is produced in excess of last year production by a crude producer," the statement said.

Meanwhile, export policy condition has also been imposed by the Directorate General of Foreign Trade, wherein exporters will be required to declare at the time of exports that 50% of the quantity mentioned in the shipping bill has been or will be supplied in the domestic market during the current fiscal year.

“While crude prices have increased sharply in recent months, the prices of HSD and Petrol have shown a sharper increase. The refiners export these products at globally prevailing prices, which are very high. As exports are becoming highly remunerative, it has been seen that certain refiners are drying out their pumps in the domestic market," the statement said.

In a bid to ensure uninterrupted fuel supply in the country, Centre has also expanded the ambit of the universal services obligation (USO) to include all retail fuel outlets across the country along with those in remote areas. As per the USO, pumps will have to maintain supplies of petrol and diesel throughout the “specified working hours and of specified quality and quantity". They will have to maintain minimum inventory levels of the fuels as specified by the centre from time to time, providing services to any person on demand within a reasonable period of time and on non-discriminatory basis and ensuring availability of fuel to the customers at reasonable prices, the ministry statement said.

“These cesses would apply to any export of diesel and Petrol from the country. As the above measure has been applied to exports, it has no implication on domestic retail prices of HSD and Petrol," the statement said.

States which have been worst-affected by the shortage are the ones with a heavy dependence on the pumps of private companies, which have shut or reduced fuel sales. In Rajasthan, fuel retail outlets run by private companies cater to 15-17% of the fuel demand. Out of the 6,475 pumps in the state, 1,275 belong to private companies. Similarly, private companies own 500 out of the total 4,900 pumps in Madhya Pradesh.

The Indian basket of crude, comprising Oman, Dubai and Brent crude too has against surpassed the $110 per barrel mark and was priced at $116.06 per barrel in June. The percentage of crude oil import out of total crude oil processed in India has risen to 89.4% in 2020-21 from 87.1% in 2015-16. Despite government efforts, domestic crude production has been in decline since FY15, dropping to just 28.4 million tonnes in FY22.

Amid a sharp surge in India’s oil import bill due to ongoing geopolitical tensions, the Union cabinet recently decided to allow more supplies of domestically produced crude to private oil refiners.

Following the government's announcement, shares of RIL, Oil and Natural Gas Corporation (ONGC) witnessed a sharp fall. RIL shares plunged more than 5%, its biggest decline in about 18 months, whereas ONGC shares tanked 10% in Friday's early deals.

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