According to a latest report by Emkay Global Financial Services, the proposed move by finance ministry to calculate refinery gate price based on export parity pricing may adversely affect oil marketing companies (OMCs).
Presently, refinery gate price, or the price at which products are transferred from refining to marketing, is calculated using trade parity pricing.
The shift from trade parity to export parity pricing may result into decline in subsidy calculation by Rs 182 bn with diesel accounting for substantial share of Rs 137.1 bn, the report shows.
OMCs stand to lose a total of about Rs 122 bn on account of this. This is against an average operating profit of Rs 193 bn in the last two years.
In case of a shift to full export parity pricing Indian refiners stand to lose on the benefit accruing from the import duty benefit on the products and also various notional expenses which go into build up of refinery gate price.
Currently OMCs enjoy an overall import duty protection of around 2.5-3 percent depending on the product slate. Effective benefit from import duty protection and various notional expenses amount to about 4-5 percent for OMCs on the key products, impacting GRMs by about $3 per bbl which they stand to loose in case of full export parity pricing, the report said.
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