Govt may deregulate domestic oil to boost revenue

Govt may deregulate domestic oil to boost revenue


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NEW DELHI: The government is likely to deregulate domestic crude on Wednesday in a bid to remove a market anomaly, boost government’s tax revenue and help producers such as ONGC and Oil India Ltd get better realisation for crude produced by them, sources said.
The Centre at present decides which state-run refinery gets how much crude from each producer. The price is then worked out on a traditional formula with Brent as a marker, instead of the global practice of a ‘five-cut’ – or yield of five most-used refined products – norm. The allocation is done every six months.
The sources said for a company such as ONGC, deregulation will boost overall realisation from each barrel of crude by about 5%. The realisation from crude pumped from Mumbai High could rise by 7-8% because of high quality and yield.
Better realisation will also boost the government’s royalty and cess income as they are charged as a percent of the price. Cess is pegged at 20%, while royalty is pegged at 20% for onshore and 10% for offshore production. Higher royalty and cess income will offset some of the government’s Rs 1 lakh crore revenue loss due to excise duty cut on petrol and diesel.
Former ONGC chairman and director (finance) Subhash Kumar said deregulation will also help downstream investments made with particular crude sources in mind to meet their optimum objectives.
Former petroleum secretary Tarun Kapoor, who is now an advisor to the prime minister, has been pushing for deregulation during his tenure. The current system subdues earnings from each barrel as the pricing is biased in favour of refiners’ production plans based on refinery configuration, instead of the actual quality of a particular oil. The sub-optimal realisation also impacts the government’s royalty and cess earnings.
A study by Petroleum Planning and Analysis Cell a while ago had also favoured deregulation of domestic crude and projected a 8-10% increase in realisation from ONGC’s Mumbai High crude.

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Author: Shirley