Dependency faces windfall tax on local supplies alongside exports

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Reliance operates two refineries – one solely for exports and the other for the domestic market.

New Delhi:

The tax just introduced on the windfall energy profits of oil refiners such as Reliance Industries is not only levied on the diesel they export, but also on the supplies they make to fuel retailers in India , sources said.

On July 1, the government levied an additional 13 rupees per liter of excise duty on diesel exported out of India. A tax of Rs 6 per liter was also imposed on petrol and ATF exported out of India. At the same time, it imposed export restrictions, subject to compliance with domestic sales of 50% for gasoline and 30% for diesel exports.

In subsequent bi-monthly reviews, the government abolished the export tax on petrol and jet fuel (ATF) and cut the export tax on diesel by more than half to Rs 5 per liter .

The windfall tax was primarily targeted at Reliance Industries Ltd and Rosneft-backed Russian oil giant Nayara Energy, which the government says was committing murder by exporting large volumes of fuel made from cut-price Russian oil to the United States. detriment to the internal market, three sources knowingly said.

After July 1, refiners exporting gasoline and diesel would have had weaker achievements and to continue their exports, they had to strengthen domestic supply either through supplies to state-owned petroleum marketing companies (OMC), either through wholesale or retail sales.

But state-owned fuel retailers like Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL), which rely heavily on supplies from stand-alone refineries to power their vast retail network, have started paying l gasoline and diesel purchased from Reliance. and others after deducting the newly imposed additional excise duty.

According to sources, for sales to JIs, refiners realize international prices because refinery transfer prices are 80% of import parity and 20% of export parity (the average of 80% of the price at which gasoline or diesel is imported and 20% of the rate at which these fuels can be exported).

The 2.5 per cent customs duty on petrol and diesel is also taken into account for the calculation of the trade parity price.

After July 1, the WTO began reducing export taxes based on this calculation, which resulted in lower realization, they said.

This principle was applicable to all supplies purchased from the stand-alone refineries of Reliance Industries, Nayara Energy, Mangalore Refinery and Petrochemicals Ltd (MRPL), Chennai Petroleum Corporation Ltd (CPCL) and HPCL-Mittal Energy Ltd.

Contacted for comment, a senior finance ministry official said the government had not imposed any tax on domestic refinery supplies.

“The CMOs have to do it on their own, and rightly so. Pricing is always based on another market or another source. If the alternative market for these refiners is export, where do they have to pay the tax to the government? , a similar deduction on deliveries made elsewhere is justified.” India’s fuel retail scene is dominated by state-owned Indian Oil Corporation (IOC), BPCL and HPCL.

While IOC – the market leader – is largely self-sufficient in the production of gasoline and diesel at its own refineries and its subsidiary CPCL, BPCL and HPCL do not have the oil refining capacity to match their operations. sale to detail. Thus, BPCL and HPCL depend on supplies from stand-alone refineries – units that process crude oil into fuel but have either no retail activity or a very limited presence.

Reliance, which operates two refineries – one solely for exports and the other for the domestic market, has 1,470 gas pumps out of 83,685 gas pumps in the country. Nayara Energy has 6,635 pumps.

These private sector outlets severely restricted sales from March/April as they could not afford to sell gasoline and diesel at a loss since public sector competition froze tariffs to help the government to contain inflation.

This diverted traffic to public sector petrol pumps which were also flooded with bulk users such as state road transport company buses. Heavy users flocked to gas pumps because fares there were subsidized from the market price they would otherwise have had to pay.

Simultaneously, private refineries began to increase their exports to fill the supply gap created by the war in Ukraine.

The deadly combination caused gas pumps to go dry in several places, prompting the government to crack down.

This crackdown helped resort to supply, but stand-alone refineries lost heavily.

Sources said that initially the export duty was applicable to all exports including from the Reliance SEZ, but in later revisions the tax on export only refineries was removed.

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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