Why you shouldn’t expect a cut in fuel prices any time soon
Even as petrol and diesel climbed to all-time highs and the Opposition protested across the country Monday, the government ruled out any immediate reduction in excise duty in order to bring down the retail prices of auto fuels, and instead urged the states to take action. While Andhra Pradesh announced a Rs 2 per litre cut in VAT on petrol and diesel following poll-bound Rajasthan’s announcement of a 4 percentage point cut Sunday, states have been largely unenthusiastic. Why is it so difficult for governments to cut taxes on auto fuels? Taxes on petrol and diesel are a key revenue source for both the Centre and states, and a cut will hit their fiscal position. The Centre mopped up Rs 2,290 billion from excise duty on petroleum products in 2017-18 and Rs 2420 billion in 2016-17. Excise duty on petrol is currently Rs 19.48 per litre, and on diesel, Rs 15.33 per litre. The Centre raised excise duty nine times between November 2014 and January 2016 to shore up its finances as global oil prices fell. It cut excise duty just once — by Rs 2 per litre — in October last year. Crude petroleum attracts 20% oil industry development cess, and a National Calamity Contingent Duty (NCCD) of Rs 50 per metric tonne. There’s no Customs duty on crude, but petrol and diesel attract a Customs duty of 2.5%. Rates of state sales tax or Value Added Tax (VAT) vary from state to state. Unlike excise duty, VAT is ad valorem, and results in higher revenues for the state when rates move up. States’ earnings through sales tax/VAT on petroleum products increased to Rs 1840 billion in 2017-18 from Rs 1660 billion in 2016-17. Maharashtra earned Rs 256.11 billion from sales tax/VAT on petroleum products in 2017-18, the highest in the country — followed by UP (Rs 174.20 billion), Tamil Nadu (Rs 155.07 billion), Gujarat (Rs 148.52 billion) and Karnataka (Rs 133.07 billion). Also, most states that impose the highest tax rates on petrol and diesel are struggling with high gross fiscal deficit as a percentage of their GDP (see chart). Assam, for instance, has a fiscal deficit of 12.7% and imposes a VAT of 32.66% or Rs 14 per litre, whichever is higher, on petrol, and 23.66% or Rs 8.75 per litre, whichever is higher, on diesel. Among the states that impose the highest VAT on petrol and diesel, Maharashtra, with a fiscal deficit of 1.8% of GDP (2017-18 revised estimates), may have some room to reduce levies. With a fiscal deficit of 0.3%, Delhi, too, has some cushion, even though its VAT rate on petrol is relatively low at 27%. Among the 29 states, Goa has the lowest VAT rate of 17%, plus a green cess of 0.5%, on petrol. Rajasthan had a fiscal deficit of 3.5% in 2017-18, and plans to keep it to 3.0% in 2018-19. Sunday’s VAT cut will make petrol and diesel cheaper by Rs 2.50 per litre, but will cost the state exchequer an estimated Rs 20 billion in revenues. Besides taxes, the Centre and the states have other earnings, too, from the petroleum sector. Adding dividend income, dividend distribution tax, corporate/income tax and profit on exploration of oil and gas, the Centre’s total earnings from crude and petroleum products were Rs 3430 billion in 2017-18 and Rs 3340 billion in 2016-17. Along with the dividend income, state governments’ earnings from crude and petroleum products stood at Rs 2090 billion in 2017-18, and Rs 1890 billion in 2016-17. Could the inclusion of petrol and diesel under GST change this situation? LPG, kerosene, naphtha, furnace oil, and light diesel oil attract GST, but five other petroleum products — crude oil, high speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel — lie outside the new tax regime. The Constitution (One Hundred and First Amendment) Act, 2016 empowers the GST Council to recommend the date on which these five items are to be brought under GST. The Ministries of Petroleum and Natural Gas and Civil Aviation have approached the Finance Ministry for inclusion of petrol and diesel, and jet fuel respectively under GST. While natural gas and jet fuel will likely be the first of the five to enter the GST tent, contingent upon approval by the GST Council, neither the Centre nor the states have so far been forthcoming on including these five petroleum products in the new indirect tax regime. Even if petrol and diesel are included under GST, prices are unlikely to fall. This is because of the GST principle of keeping rates close to the earlier tax rates. In June, Bihar Deputy Chief Minister Sushil Kumar Modi, who is a member of the GST Council, said that bringing petrol and diesel under GST would not have a big impact on prices, as states will levy additional taxes to boost revenues. “Most people feel that if we put petroleum products under GST then the highest slab of 28% will be levied and prices will come down. [In fact,] It will affect prices only in a minor way,” Modi had said at the PHD Chamber of Commerce and Industry’s national conclave on GST. The trend worldwide, Sushil Modi said, has been that if petrol and diesel are included in GST, states levy additional taxes “over and above to prop up revenue”. “If they (states) forego (tax), how will they earn revenue?” he asked. So does it mean that if the government does not cut prices, it will have insulated its finances from erosion? Not quite. The Centre may still have to bear some direct costs, since all fuel product prices are not market-linked. Kerosene and LPG prices continue to be regulated, with the government subsidising these products to protect society’s weaker sections. Budget 2018-19 put the LPG and kerosene subsidy bills at Rs 203.7780 billion and Rs 45.55 billion respectively, taking the total subsidy to Rs 249.3280 billion. The LPG subsidy includes a direct benefit transfer component of Rs
Switching to Ethanol, CNG Will Reduce Petrol, Diesel Prices In India: Union Minister Nitin Gadkari
Union Road Transport Minister Nitin Gadkari said that Chhattisgarh has immense potential for production of bio-fuel. Addressing a gathering at Charoda in Durg district of the state, he said use of alternative fuels will cut down our dependence on petrol and diesel. Gadkari laid foundation stones of or dedicated total of eight construction works worth Rs 42.51 billion, including four fly-overs between Raipur to Durg Monday. “Growth rate of the agriculture sector in Chhattisgarh is very good. Production of rice, wheat, pulses and sugarcane is abundant here, but the state can also emerge as a bio-fuel (production) hub,” he said. Bio-fuel produced from jatropha plant in Chhattisgarh was used in the first biofuel-powered flight which took off from Dehradun and landed in Delhi recently, he said. The state has immense potential for production of bio-fuel which will create job opportunities for farmers, tribals and forest-dwellers and empower them, he said. A research institute on biotechnology should be set up in the state capital Raipur which can help the state lead in the production of alternative fuels in the country, he said. Switching to ethanol, methanol, bio-fuel and CNG will cut down dependence on petroleum and reduce the prices of petrol and diesel, he said. “We are importing petrol and diesel worth Rs 8000 billion and prices are increasing. Rupees is falling against dollar. I have been saying for last 15 years that farmers, Adivasi (tribals) and forest-dwellers of the country can produce ethanol, methanol, bio-fuel and can (become rich enough to) fly planes…” the Union minister said. “We have decided to exempt vehicles including auto-rickshaws, buses, taxis run on alternative fuels like ethanol, biodiesel, CNG, methanol and bio-fuel from permit requirements,” he said. “Our petroleum ministry is setting up five ethanol plants, where the fuel will be produced from paddy straw, wheat straw, sugarcane and municipal waste. (Consequently) Diesel will be available at Rs 50 per litre and petrol at Rs 55,” he said. Saying that he has approved the projects demanded by the Chhattisgarh government, he said, “I am the only minister who has no dearth of money (for his department). I have so far inaugurated works worth Rs 40,000 billion. “I have no dearth of money but I ensure that the work is done in a good way. After getting works worth Rs 40,000 billion executed, I can confidently say that no contractor had to come to the office with bills (to get them passed). All the works which were done were corruption-free and done in a transparent manner,” the Union minister said. Calvin Munson Jersey
Rising fuel prices can give windfall gains of Rs 227 billion to states: Report
The surge in petrol and diesel prices can give windfall gains of around Rs 227 billion during the current fiscal, according to a report by the Economic Research Wing of SBI, released on Tuesday. “We also estimate that since the states have an incremental revenue over the budgeted one, they could cut on average petrol prices by Rs 3.20 /litre and diesel by Rs 2.30/ litre, without affecting their revenue arithmetic,” the report, authored by Soumya Kanti Ghosh, Group Chief Economic Adviser of State Bank of India, said. The report has come at a time when the Modi government is facing harsh criticism on the fuel price situation. Fuel comes under the dual taxation system. While the Centre levies excise duty at specific rates, which are Rs 19.48 a litre for petrol and Rs 15.33 a litre for diesel, states impose sales tax/VAT at ad valorem as well as specific rates, besides cess (in some states only). The sales tax on petrol varies from 6 per cent (Andaman & Nicobar Island) to 39.12 per cent (Maharashtra – Mumbai, Thane & Navi Mumbai). Similarly, sales tax on diesel ranges from 6 per cent (Andaman & Nicobar Island) to 28.08 per cent (Andhra Pradesh). Since states have ad valorem rates i.e. certain percentage of value, and it is calculated on the base price plus excise duty, there is a possibility of windfall gains for states. The report said since March, petrol and diesel prices have increased by Rs 5.60 and Rs 6.31 respectively in Delhi. The price of petrol has now crossed Rs 89 a litre in Maharashtra (highest). “This increase in petrol and diesel prices is likely to give states windfall gains of around Rs 227 billion over and above the budget estimates for the current fiscal. Alternatively, a $1/barrel increase in oil prices translates, on average, to a Rs 15.13 billion revenue gain for all the major 19 states,” it mentioned. This windfall gain will have a positive impact on state finances, which might push down the states’ fiscal deficit by 15-20 bps (100 bps or basis points equal to 1 per cent) provided other things remain unchanged. It is believed that that states such as Maharashtra, Madhya Pradesh, Punjab, Tamil Nadu, Andhra Pradesh, Rajasthan and Karnataka have the privilege to cut petrol prices by at least Rs 3 from their existing rates and Rs 2.5 on diesel. The report noted that a cut by Rajasthan and Andhra Pradesh has already pared rates. The report recommend that if the states impose VAT on base price (crude oil+ transportation cost+ commission), then diesel prices could drop by as much as Rs 3.75 and Rs 5.75 for petrol. However, this will result in a revenue loss of around Rs 120 billion (net of Rs 346.27 billion loss and Rs 227 billion gain from oil bonanza) to the states. “The problem with the states is that even as many have a revenue surplus, they are using the surplus revenue to finance capital expenditure and interest obligations,” it said. Sam Mills Jersey
GAIL India says aims to add 5,500-km gas pipeline in three years
Indian gas firm GAIL (India) Ltd aims to add 5,500 km gas pipelines to boost its capacity by about 50 per cent in the next 3 years, its chairman said on Tuesday. India wants to raise share of natural gas in its energy mix to 15 per cent in next few years from about 6.5 per cent as the world’s third-biggest oil importer and consumer wants to cut its massive import bill and reduce its carbon footprint. In a written statement to shareholders, B C Tripathi said GAIL has also booked 1.5 million tonnes a year regassification capacity at Dhamra LNG terminal in eastern Odisha state. The company’s current annual gas marketing portfolio comprises 14 million tonnes, he added. David Bakhtiari Authentic Jersey
BPCL to skip Iran oil purchases in October: Source
India’s state-run Bharat Petroleum Corp will skip purchase of Iranian oil in October due to turnaround at its plants, a source privy to the plan said on Tuesday. The refiner will, however, lift 1 million barrels of Iranian oil this month, said the source, who did not wish to be identified. There was no immediate response from BPCL on Reuters’ email seeking comments. BPCL has changed a crude mix for its 240,000 barrels per day (bpd) Mumbai refinery after shutting down the fire-hit hydrocracker unit last month to optimise its processing and output of refined products, said the source. The hydrocracker unit will remain shut for at least another two months. Kyle Long Authentic Jersey
Venezuela signs oil deals similar to ones rolled back under Chavez
Venezuela has agreed to hand over at least seven oil fields to little-known companies that will be paid to boost output through contracts similar to ones rolled back under late socialist leader Hugo Chavez, according to two sources and an internal document. The effort signals that President Nicolas Maduro, who is struggling under a hyper-inflationary economic meltdown and fast-declining oil output, is willing to reverse the aggressive efforts of his predecessor – who died in 2013 – to expand the state’s role in the energy industry of the OPEC nation. But the plan faces significant hurdles because most companies involved have no known experience operating oilfields, and U.S. sanctions would likely inhibit more experienced firms from getting involved with Venezuela’s state-run PDVSA. The government had already announced a vague plan to boost oil output with the help of seven companies. The plan was described during a televised event on Aug. 28 in which representatives of those companies, during a ceremony including Maduro, signed “joint service agreements” with PDVSA. Details of the deals were not disclosed. But in a draft contract seen by Reuters, PDVSA offers to put companies in charge of the fields for six years on the condition that they boost production, finance the required investment and procure the necessary equipment. The draft was the basis for the contracts announced by Maduro, said two sources familiar with the situation who asked not to be identified because they are not allowed to speak publicly about the issue. Reuters was not able to obtain finalized contracts. The companies involved have not yet announced final agreements with Venezuela. Neither PDVSA nor the companies involved responded to a request for comment. The president of PDVSA, Manuel Quevedo, said during the Aug. 28 event that the overall plan would involve $430 million in investment and a production increase of 641,000 barrels per day (bpd). The terms of the deals were not disclosed. Quevedo said the plan included 14 companies but that only seven were present that night, without mentioning the names of the other companies. The deals involve fields including two that were operated by Italy’s Eni and France’s Total. The companies that signed agreements include five Venezuelan firms: Petrokarina, Enfriadores de Venezuela C.A., Consorcio Rinoca Centauro Karina, Well Services Cavallino, and Consorcio Petrolero Tomoporo. Most of them appear to be involved in oil services but have no evident experience operating fields, which tends to require significantly more capital, human resources and certifications. The companies either did not respond to requests for comment or do not have sufficient publicly available contact information to make such a request. The other two are Helios Petroleum Services, a Panamanian company that describes itself as petroleum marketer, and Shandong Kerui Holding Group, a Chinese oilfield equipment manufacturer. Neither responded to requests for comment. ‘DISGUISED PRIVATIZATION’ The draft says companies would receive a fee in compensation for the value of additional barrels they produce, and be reimbursed for the investments they make. PDVSA would have a six-month grace period, starting at the time the contractor increases output, to begin making payments. Payments would be made to the account of a trust created by the contractor, the draft says, helping ensure the contractor actually receives payment from PDVSA – which is billions of dollars behind in paying partners and providers. The draft contract is similar to a group of 1990s-era contracts known as “operating agreements” under which PDVSA contracted out oil production to companies that were paid a fee for the crude they produced. Chavez, elected in 1998, for years lambasted this arrangement as a bad deal for Venezuela on the grounds that it was a “disguised privatization” of the oil industry that did not leave enough revenue in the hands of the state. Former oil czar Rafael Ramirez, who oversaw Chavez’s push to boost the state’s role in the oil industry, in a 2005 speech to Congress said the arrangements were illegal because they handed over oilfields to private companies in violation of the 1970s oil industry nationalization. The legal status of the contracts signed in August was not immediately evident. Venezuela in 2005 ordered that operating agreements be converted to joint ventures in which PDVSA held a majority. Despite a 10-year oil boom that left PDVSA flush with cash, output at those fields steadily declined as the company diverted necessary investments into social programs that kept Chavez popular. The 2014 collapse of oil prices ushered in an economic crisis that left millions unable to eat, leaving oil engineers and oilfield workers alike rushing to leave the country. Maduro says the country is victim of an “economic war” led by opposition politicians with the support of Washington, which has slapped several rounds of sanctions on his government. Brandon Marshall Authentic Jersey
Russia’s Novatek signs LNG agreement with Japan’s JOGMEC
Russia’s Novatek said on Monday it had signed a framework agreement with Japan Oil, Gas and Metals National Corp (JOGMEC) to cooperate on Novatek’s liquefied natural gas (LNG) projects in the north of Russia. “The parties agreed to explore opportunities to cooperate on Novatek’s projects in the Yamal and Gydan peninsulas, including the Arctic LNG 2 project, on developing a regular transport link via the Northern Sea Route for LNG deliveries to the Japanese and Asia-Pacific markets,” the statement said. Novatek controls the Yamal LNG project, in which France’s Total along with China’s CNPC and the Silk Road Fund are minority shareholders. Russian and Japanese companies signed a portfolio of agreements on the sidelines of a forum in Russia’s far eastern city of Vladivostok on Monday. Travis Hamonic Womens Jersey
Iraq replaces Saudi as top oil supplier to India in August: data
Iraq replaced Saudi Arabia in August as the top oil supplier to India, data from industry and shipping sources showed, as refiners turned to Iraqi barrels to compensate for a lower intake of Iranian oil ahead of U.S. sanctions in November. The United States is reimposing sanctions on Iran following Washington’s decision in May to withdraw from a 2015 international deal aimed at curbing Tehran’s nuclear programme. While some sanctions were implemented from Aug. 6, those affecting Iran’s petroleum sector take effect only from Nov. 4. Imports of Iranian oil by India, Tehran’s top oil client after China, fell by about a third to about 523,000 bpd in August from July as state-refiners slowed purchases due to a delay in securing government approval to use Iranian ships. Despite the lower purchases, Iran remained the third biggest oil supplier to India in August, the data showed. Washington will consider waivers for Iranian oil buyers such as India but they must eventually halt imports as sanctions are imposed on Tehran, U.S. Secretary of State Mike Pompeo said last Thursday. Iraq and Saudi Arabia continued to be the two biggest oil suppliers to India last month, the tanker arrival data obtained from sources showed. The sources declined to be identified. India refiners shipped in 1.02 million barrels per day (bpd) of Iraqi Basra oil in August, an increase of about 46 percent from the previous month, while imports from Saudi Arabia declined 5 percent to about 747,000 bpd during the period, the data showed. India imported less Nigerian oil in August as the west African nation’s output was hit by outages in a couple of major streams such as Bonny Light and Tornados. Also, Asian buyers opted to take light sweet U.S. oil rather than Nigerian. India’s imports of U.S. oil in August rose to a record 275,000 bpd, accounting for about 6 percent of its overall purchases, the data showed. India refiners had booked U.S. oil cargoes in June when discounts between U.S. crude future and Brent was wide enough to make arbitrage economics feasible for India. India’s monthly oil imports from Nigeria declined by about 34 percent to about 279,000 bpd, the data showed. Overall India’s monthly oil imports in August rose 3.1 percent to about 4.7 million barrels, while they were up 15.8 percent from a year earlier, the data showed. Erik Swoope Womens Jersey
Policy tweak in works to allow companies to sell oil & gas to affiliates
The oil ministry is considering redefining ‘arm’s length sale’ for oil and gas contracts to include sale to an affiliate, which would allow a producer to sell its output to a related party, people familiar with the matter said. All oil and gas contracts in the country mandate parties to follow arm’s length principle — whereby the buyer and the seller are unrelated and act independently to achieve a fair market value of the product or service being transacted — so that the government gets its fair share of revenue for the oil and gas produced in the country. The directorate general of hydrocarbons (DGH), the oil and gas industry regulator, has recently written to the ministry of petroleum and natural gas that the arm’s length sale must be redefined to end a contradiction in the model revenue sharing contract under the latest exploration licensing policy, sources said. The definition of arm’s length sale explicitly excludes sale to an affiliate. But, the new contract introduces a provision allowing sale to an affiliate. It is this contradiction DGH wants resolved, they said. The development has triggered a debate in the oil ministry on whether it is possible to redefine the universally-recognised principle of arm’s length transaction in the narrow context of oil and gas contracts. All contracts related to oil, natural gas and coal bed methane (CBM) have the provision of arm’s length sale, which prevents producers from doing related-party sale. In cases where blocks were awarded without an auction to state firms, the government, not companies, allocates oil and gas to customers. Sidney Jones Jersey
India to have 10,000 CNG stations in next 10 years, on track to adapt cleaner fuels: Dharmendra Pradhan
Oil Minister Dharmendra Pradhan on Thursday said the country was on its way to construct more than 10,000 compressed natural gas (CNG) stations in the coming decade. He was speaking at an event held by the Society of Indian Automobile Manufacturers. “CNG vehicles are cheaper and less polluting and for this reason, according to the road map created by the government, India will get 10,000 CNG stations in the coming 10 years from around 1,400 today. These numbers are not part of any announcement; the numbers are based on the commitments made by winning bidders under the 9th City Gas Distribution (CGD) round,” Pradhan said. He added that the government had initiated the process to launch the 10th CGD bidding round as well. Pradhan said that after the 9th CGD round government’s access to the CGD networks would increase to more than 300 districts, which will entail an investment of more than Rs 70,000 crore. Earlier, in 2014 only 73 districts in the country had accessibility to the CDG networks. Speaking on the country’s energy imports, Pradhan said, “India imports around 3,500 million tonne (mt) of crude oil, coal, LPG, LNG and if we calculate the waste and unused carbon available in the country in the form of agri-waste, forest waste, etc, it comes to around 4,500 mt.” He added that the country’s oil-marketing companies (OMCs) were building 12 second-generation ethanol plants, which would produce ethanol from agriculture and urban waste. On country’s biofuel foray in powering aircrafts, the oil minister said, “India uses around 6 mt of aviation turbine fuel (ATF), India’s forests hold around 7 mt of non-edible oil producing plants, which can be used to produce bio-ATF. Technology is not a challenge anymore.” Pradhan added that even though the use of biogas had been around for some time, the country needs to further convert it into bio-CNG to utilise it in the transportation sector. “In order to give stimulus to the sector, government-owned OMCs have decided to provide complete off-take guarantee of bio-CNG at a good price. Also, bio-CNG and biofuel can become viable alternative for the transportation sector,” Pradhan said. He added that the country is moving towards adapting cleaner fuels such as biofuel, bio-CNG, coal to gas, and coal to methanol projects, and would be able to meet Prime Minister’s target of decreasing the country’s energy imports. Adam Wainwright Womens Jersey