Deora floats a 3% cess on income tax as oil firms bleed

Wed, May 28 02:09 AM

With ministries of Petroleum and Finance bickering over specific steps to provide hard cash to loss-making state-run oil marketing companies, Prime Minister Manmohan Singh today directed Petroleum Minister Murli Deora to club all possible options, including a 3 per cent cess on income tax, and bring it to the Cabinet on Thursday for a decision.

The PM's direction to bite the bullet on funding the cash-strapped OMCs came when Deora apprised him of the morning meeting with Finance Minister P Chidambaram. The Finance Minister had cold-shouldered Deora's request for cutting customs and excise duties on petrol and diesel and abolishing the import duty on crude oil to soften price impact on the consumers.

Chidambaram asked Deora to instead concentrate on raising prices. On his part, the Finance Minister said that he would be willing to forego any extra excise duty that would accrue on account of the price increase. Deora, who also proposed the cess on income tax as a way out, is against a hefty price increase and wants duty cuts to restrict the price rise to Rs 2 per litre on petrol and Re 1 on diesel.

At current rates, the OMCs lose Rs 13.97 a litre on petrol and Rs 20.97 on diesel.

The Finance Minister is also in favour of state-run oil producers sharing a larger portion out of the "windfall profits" earned by them over and above last year's crude price.

Upstream firms paid Rs 25,700 crore as their one-third share of last year's under-recoveries calculated at $79 a barrel. This has since then jumped to $127 a barrel for the Indian crude basket.

The high crude prices have meant that the OMCs, which also double up as refining companies, do not have cash to buy crude oil. While Indian Oil Corp can finance imports till September, Bharat Petroleum and Hindustan Petroleum will run their credit line in June.

The three face liquidity crises as they are unable to realize the full price on petrol, diesel, LPG and kerosene and are saddled with oil bonds that mature in 2025 and are ineligible for statutory liquidity provisions.

"We don't want to see scarcity of petroleum products particularly kerosene and LPG," Deora told reporters. "PSUs are in a precarious state and a solution needs to be found."

The three are borrowing Rs 3,500 crore a month to meet day-to-day expenditure. With borrowings touching Rs 65,000 crore, they are now talking to banks to raise borrowing limit.

Deora has started political consultations ahead of Thursday's meeting where the wishlist of both sides would be submitted, sources said. He met RJD minister Kanti Singh today as her party chief Railways Minister Lalu Yadav was away. Tomorrow, he meets Left leaders Sitaram Yechury and Brinda Karat to get their approval for a price hike.

The options, so far

• Raise petrol prices by Rs 10 a litre, diesel by Rs 5 and cooking gas by Rs 50 per cylinder to raise Rs 46,500 crore

• Halve import duty and excise duty on petrol and diesel while halving the customs duty on crude oil to raise Rs 28,000 crore

• A 3% cess on corporate and income tax to raise Rs 10,950 crore

• Increase budgetary support to LPG to Rs 67 per cylinder (from Rs 22.40) and on kerosene to Rs 2.40 per litre (from 82 paise) with Rs 6,800 crore taken out of the money kept aside for Oil Industry Development Board

• Higher share for the government out of 'windfall profit' to state-run crude producers

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