Pradhan pitches for cut in oil cess

Petroleum Minister Dharmendra Pradhan has asked Finance Ministry to cut cess on domestically produced crude oil to 10-12% from current 20% to provide relief to producers hit by slump in prices.

After oil producers including state-owned ONGC and private sector Cairn India pleaded for reduction in cess, the ministry had written to Finance Ministry to revise the rate to 10-12% ad valorem or alternatively consider introducing of a graded system of cess rate.

“It should be according to market dynamics. I am recommending to Ministry of Finance to look into expectations of E&P sector,” he said.

In the Budget for 2016-17, Finance Minister Arun Jaitley had moved from a fixed Rs 4,500 per tonne cess on domestically produced crude oil to a percentage of oil prices or ad valorem rate of 20%, a move that was supposed to give relief to upstream firms.

At crude oil price of $45 per barrel, the old rate of Rs 4,500 per tonne and the new ad valorem rate even out and if oil prices are to go up, companies will end up paying more. “I am hopeful the Finance Ministry will favourably consider this,” Pradhan said.

The Oil Industry (Development) Act, 1974 provides for collection of cess as a duty of excise on indigenous crude oil.

This cess is a production cess which is not a pass-through and has to be borne by the oil producers. This cess on crude oil moved to a refinery was levied at Rs 60 per tonne in July 1974, and subsequently revised from time to time.

It was Rs 900 per tonne, when India opened up its economy in 1991 and was doubled to Rs 1,800 in 2002.