The Petroleum Federation of India (Petrofed), an apex body of entities in hydrocarbon sector, warned the union finance ministry against its proposed norm for calculation of under-recoveries of state-run oil marketing companies (OMCs).
Recently, the finance ministry proposed that the export parity price should be considered for calculating under-recoveries of OMCs instead of the present trade parity price.
Petrofed argues that while a change from trade parity pricing to export parity pricing may benefit fiscal management of the government in short term by lowering its subsidy burden it would render a serious blow to the domestic refineries.
The ministry prefers export parity pricing because this would abolish 2.5 per cent customs duty on petrol and diesel from the calculation of price and hence save up to Rs 18,000 crore in annual subsidy outgo.
In a letter to the finance ministry, the Petrofed warned that removing duty protection on products would render some inland refineries sick” while private refiners like Reliance Industries and Essar Oil may resort to exporting their full production.
The letter argues that there is no import duty on crude oil and if the same on petrol and diesel is also abolished, there would be no duty protection left to the refineries who included the element of customs duty in pricing of the product to make up for freight, Central Sales Tax (CST) and other charges.
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