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Oil Cos Are Bleeding Rs 16 Cr an Hr; Here’s A Simple Reform Idea

  • India’s oil marketing companies (OMCs) – Indian Oil, Bharat Petroleum and Hindustan Petroleum —are losing money at the rate of Rs 388 crore a day, thanks to subsidies. That’s a Rs 16.6 crore loss every hour.So what’s new?Well, this may be the best time to free petroleum prices. Reason: for the first time in a long time, the centre’s direct subsidies to the oil marketing companies will exceed the taxes it collects from the sector in 2011-12.

  • According to calculations made by Business Standard, thanks to the reduction in customs and excise duties last June, the net earnings of the government “from indirect taxes, corporate income tax, dividend, tax on dividend and tax on profit petroleum (the centre’s share on oil and gas discoveries) from the sector will top out at about Rs 86,000 crore.”The centre’s direct subsidies to the oil marketing companies will exceed the taxes it collects from the sector in 2011-12. AFPAs against this, the net under-recoveries of the oil companies will be around Rs 1,32,000 crore. Of this amount, around a third is subsidised by ONGC, Gail and Oil India, and the centre’s own direct subsidies will be around Rs 90,000 crore, says the newspaper.

  • When you balance earnings of Rs 86,000 crore against subsidies of Rs 90,000 crore, the option is clear: if the centre chooses to drop duties to an absolute minimum, end subsidies and frees petroleum prices, what we will get (with some adjustments) is a marginal increase in pump prices of diesel, and a reduction in petrol, with kerosene and liquefied petroleum gas (LPG) getting subsidies directly from upstream companies – ONGC, Oil India, and Gail.

  • It actually makes little sense to collect high indirect taxes from the oil companies and then return it to them as subsidies.

  • Why not reform the sector when the option is so clear?

  • A better option would be to deregulate diesel immediately without sacrificing revenues, and abolish the direct subsidies. But the UPA government has shown no such ability to take tough decisions. So why dream about it now?

  • As things stand, the government’s Petroleum Planning and Analysis Cell says that at current crude prices, the subsidy on diesel is Rs 11.30 per litre, while kerosene gets a discount of Rs 28.50 and domestic LPG Rs 326 per cylinder.Time to get those numbers to zero.

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