On Pricing in the Oil Sector

Date: 
Friday, August 12, 2005

Press Statement

The Polit Bureau of the Communist Party of India (Marxist) has issued the following statement.

                                                         On Pricing In the Oil Sector

The Polit Bureau of the CPI(M) expresses its concern at the recent trend of cash losses suffered by public sector Oil Marketing Companies (OMC). Apart from the abnormal price in global crude price, the proportionate increase in tax/duties levied by the government are proving to be a double burden on consumers as well as the public sector oil companies, which are called upon to share the subsidy for kerosene and LPG. For example, out of the retail price of petrol in Delhi, 57 per cent is tax component, for diesel this component is 35 per cent. Thus the tax component results in exorbitant prices of these products.

The PB of the CPI(M) reiterates its earlier proposal that the excise duty hike imposed in the last budget be rolled back. Further, the additional road cess on diesel and petrol should be suspended for this year. This would not result in revenue loss as compared to last year for the simple reason that this year’s budget estimate was based on the February crude price of $ 39 per barrel as against the present global price of $ 65 per barrel. This would result in a substantially higher revenue as taxes are levied on the value of the imported products (ad valorem).

The Polit Bureau also urges upon the government to accept the recommendation of the Standing Committee of Petroleum and Natural Gas presented in parliament on 4.8.2005. a) To form a price stabilisation fund from the cess levied under the provision of Oil Industries and Development Act (OID) 1974 which is not at all being used at present by the oil industry, and b) to withdraw the duty drawback incentive extended to private stand alone refineries. The global price hike has to be shared equitably by the government, the oil companies as well as the consumers. The present pricing system and the recent price rise has entailed sacrifice from the consumer and the public sector oil companies while the private oil companies make higher profits and the finance ministry of the government of India earns higher revenue.

The Polit Bureau of the CPI(M) hopes that in line with the alternative proposals of the Left and the recommendations of the parliamentary committee, the government would revisit the tax structure immediately and also force the private refiners who are having a very high refining margin and super profits to share the subsidy borne only by the public OMCs.