Fuel Price Hike Thoroughly Unjustified

Wednesday, June 4, 2008

Press Release

Fuel Price Hike Thoroughly Unjustified

The hike in the prices of petrol, diesel and LPG announced by the Government today is unjustified. If the suggestions put forward by the Left Parties are taken into account, this price hike would be totally unnecessary.

The Government has said that the price hike would lead to additional earnings of Rs. 21123 crore for the Public Sector Oil Marketing Companies (OMCs). This amount can be easily mobilised to provide relief to the OMCs by doing the following:

v Rs. 7500 crore per annum cess collected from ONGC and Oil India Ltd. under the Oil Industry Development (OID) Act, 1974, which is not being used for the development of the petroleum sector, can be used to create a Price Stabilisation Fund, from which the OMCs can be compensated.

v If excise duties on petrol and diesel are cut by Rs. 3/litre instead of Re. 1/litre as has been done presently, a further relief of around Rs. 12000 crore can be provided to the OMCs.

v According to the Statement of Revenue Foregone in the Union Budget 2008, the Government is estimated to have lost Rs. 87992 crore in excise duty exemptions and Rs. 58655 crore in corporate tax exemptions in 2007-08. The Government would not lose any revenue on account of the tax relief given to oil companies if it can phase out 15% of these huge corporate and excise duty exemptions.

v According to the Annual Report of the Reliance Industries Limited, its profit from the refining business has increased from Rs. 5915 crore in 2005-06 to Rs. 10372 crore in 2007-08. Not a single paisa of tax has been paid out of these profits, which have nearly doubled in two years. A windfall profit tax of 20% on such profits from refining as well as oil and gas exploration can help in mobilising at least Rs. 2000 crore.

The astronomical figures for under recoveries of OMCs that are being projected as their losses by the Government are notional figures. They are not actual losses. The Government should realize that in a global context where price of crude oil is reigning at a high level, the only sustainable solution lies in restructuring duties on petro products and having a transparent pricing policy whereby the OMCs as well as the refineries do not retain hefty profit margins. What is at stake today is not the market capitalisation of the oil companies but the livelihood of the working people who are already suffering from back-breaking inflation.