Economic Highlights

New Delhi, 28 June 2010

Petro Companies

GOVT. MISLEADING NATION

By Shivaji Sarkar

The public sector petroleum companies are not in any loss as the Government tries to make the people believe. Even the companies have never stated that they are in losses. They have merely stated that there were under recoveries. But they have never come forth to explain the under recovery and on what count. The world-over petroleum companies have been making staggering profits more so as the international crude prices rise. Shell, Exxon and BP have earned billions.

The step to dismantle the supposed administrative price mechanism (APM) is apparently not aimed at benefitting nine public sector companies but the private oil companies, who find it difficult to compete with the tight-budgeting PSUs. This is apparently a sequel to the agreement between two feuding brothers of one of the largest oil companies. Their retail outlets were in jeopardy as the PSUs were told to maintain just prices.

The dismantling of APM has had deleterious effects as the nation had witnessed after it was dismantled for a few years after the United Front Government had taken such a decision way back in 1997. It had led to price spiral of commodities. So quietly the Government reintroduced the mechanism so that there was less exploitation of the consumer.

The Government’s statements in Parliament during the Budget session only confirms that the country is not benefitting from the activities of private companies. The domestic refining capacity is 179.9 million metric tonnes (MMTPA).  Of this, private sector refines 72.5 MMTPA. The Government claims that the country is “not only self-sufficient in refining capacity but also exports substantially”. It is silent on details. But it is well known that most of that refined in the private sector, even the oil spud offshore in Krishna-Godavari, Mahanadi, Cambay and other basins in the country find their way to external markets. The private sector gains enormously but the public sector’s gains get restricted.

The latest move is to project before the people that it was creating a “level-playing field”. It is a different story that it would not only benefit the private sector more but it would also expose the PSU oil companies to unfair and unethical competition, which definitely would tell on their health. The move would open up the people to become fodder for not so responsible private sector companies.

The Government is trying to justify that it had to take steps to offset Rs 22306 crore subsidies – special securities in official terminology -“towards under recoveries on account of sale of sensitive products in 2009-10”. In reality, the Government notionally paid only Rs 12,000 crore to the oil companies. The companies had actual deposits worth Rs 10,306 crore with the Government, which was adjusted against the “special securities”.

Actual subsidies were to the tune of Rs 3125 crore on account of part subsidy on LPG, PDS kerosene and freight subsidy to the companies for supply to North-East and far-flung areas.

Nothing had been paid to the companies of their claims under APM since 2007-08. The

Ministry of Petroleum categorically states that it does not provide any budgetary support to finance annual plan outlay of Rs 69457 crore. It says: “the projects are implemented by oil PSUs from out of their internal resources”. In the current year, only Rs 36 crore has been allocated as Plan support for setting up the Rajiv Gandhi Institute of Petroleum Technology at Rae Bareli.

This also substantiates that despite the APM oil PSUs are generating enough revenue to sustain their activities and even pay hefty amount as taxes to the Government. (The Indian Oil alone paid over Rs 58,000 crore as taxes). It should be an eye opener.

This merely means that even private sector oil companies do not have justification for stopping sale in the domestic market and exporting it. The new exploration policy (NELP) gives them the unfettered freedom. It is time the nation amends NELP for companies registered in the country. This would bolster profits of the oil PSUs.

The oil PSUs despite increase in petroleum prices in the international market have ended up making profits even after paying tax (PAT). This only substantiates that the prices prevailing even before the rise announced on June 25 were remunerative.

The Indian Oil Company earned a profit of Rs 2228.28 crore after paying tax of Rs 805 crore; ONGC Rss 13096 crore; Bharat Petro 834.44 crore:, Chennai Petro Rs 664.28 crore; ONGC Videsh Rs 916 crore; Oil India Ltd Rs 2612,  GAIL India Rs 2229 crore, Numaligarh Refinery 140 crore; Balmer Lawrie (IBP) Rs 99 crore; Mangalore Refinery Rs 210.04 crore and HPCL profit was Rs 8.21 crore. The Government has earned over Rs 20,000 crore in income tax from these companies.

The companies have paid staggering taxes as the tax component on petroleum products comes to over 50 per of the sale prices. Indian Oil alone paid Rs 25196 crore as Central government taxes last year and Rs 32773 crore to the State Governments. All other companies pay similar tax apart from income tax. The tax components of all companies together would surpass Rs 100,000 crore.

So even if it is accepted that the companies are suffering “losses” as the Government claims, it would appear that it is being mounted on them by the Government. It appears that the officials in the Government are not presenting to the minister the correct picture and creating a bogey to justify the unjustifiable. Statistics are being twisted to present a case that is not.

Whatever the Government is trying to project as its largesse is misplaced. If the taxes are rationalized, none of the oil PSUs would even have the so-called “under recovery” shown in the books. It is time the Government rationalizes the system and allows oil PSUS to grow without allowing them and private companies the right to fleece. It also exemplifies that the rise in the latest prices is misplaced and the Government is misleading the nation. ---INFA

(Copyright, India News and Feature Alliance)