Date:27/05/2005 URL: http://www.thehindubusinessline.com/2005/05/27/stories/2005052702300100.htm

Back Govt may end duty sops on petro product exports

Our Bureau

New Delhi , May 26

A DECISION on domestic petrol and diesel prices may be in the offing with the Government considering the option of withdrawing the export incentive duty drawback scheme for petroleum products.

At present, major exports of petroleum products are undertaken basically by the private sector.

The option of withdrawing the duty drawback scheme reportedly came up at a meeting here on Thursday, called by the Prime Minister, Dr Manmohan Singh, and attended by the Finance Minister, Mr P. Chidambaram, and the Petroleum Minister, Mr Mani Shankar Aiyar.

Mr Chidambaram later told the media that the meeting remained inconclusive, though some suggestions were made to the Petroleum Ministry. "Another meeting will be held next week," he added.

However, sources in industry say that one of the options of withdrawing the export incentive duty drawback scheme for the oil sector was considered since it would save the Government about Rs 2,400 crore annually.

With this saving, the Finance Ministry could afford to lower excise duties on petroleum products at least to that extent and provide relief to the consumer in terms of a low price increase.

Consequently, the Government's objective that all stakeholders — oil marketing companies, consumers and the Government — would have to share the burden of high international oil prices would be achieved.

Reliance Industries is said to be the biggest beneficiary of the duty drawback scheme since it exports almost 30 per cent of its petroleum products from its 33-million-tonne refinery.

Domestic prices of petrol and diesel have been frozen since last November, despite international crude oil prices displaying considerable price volatility and crossing the $55-a-barrel mark on many occasions.

What restrained the Government from allowing the domestic oil companies from raising prices was the steadfast opposition from the Left parties, which wanted a duty restructuring to avoid a heavy burden on the consumers.

The oil companies, on the other hand, cited huge under-recovery on sale of petroleum products and sought an increase in petrol prices by Rs 4.59 a litre, half of it (Rs 2.52) on account of the hiked excise duty. Similarly, diesel prices were sought to be raised by Rs 4.97 per litre, including Rs 1.53 due to excise effect.

The increase in petrol and diesel prices also includes a 0.61-paise per litre increase in road cess to take it to Rs 2 per litre.

According to the industry, gross under-recovery on petrol, diesel, LPG and kerosene for 2004-05 and April 1 to May 15 is Rs 20,310 crore and Rs 5,860 crore, respectively.