India’s prime oil and fuel producer ONGC desires the federal government to scrap the windfall revenue tax levied on domestically produced crude oil and as a substitute use the dividend path to faucet into bumper earnings ensuing from surge in international vitality costs.
The agency additionally favours a flooring value for pure fuel at USD 10 per million British thermal unit — the present government-dictated price — to assist deliver deposits in difficult areas to manufacturing, two sources conscious of the matter mentioned.
State-owned Oil and Pure Fuel Company (ONGC) administration throughout discussions with authorities officers acknowledged that levying windfall revenue tax on home oil producers, whereas on the similar time reaping wealthy financial savings from shopping for discounted oil from Russia was unfair.
Shopping for discounted Russian crude oil, which was shunned by the West for the reason that Ukraine battle, has helped save Rs 35,000 crore and this financial savings must be ploughed again by boosting home output, they mentioned.
ONGC administration has informed the federal government the financial savings from Russian oil purchase must be allowed to be handed on to the corporate which can make investments the identical in recognized tasks.
It feels corporations must be allowed to reap larger revenues and income from elevated oil and fuel costs as a substitute of levying windfall revenue tax on costs above a threshold.
This larger revenue will be then tapped for dividends that are a extra equitable method of distributing wealth, the corporate administration informed the federal government.
As per the extant tips, ONGC pays a minimal annual dividend of 30 per cent of internet revenue or 5 per cent of the online price, whichever is larger.
Following this coverage, the agency pays the next dividend to the federal government, which holds virtually 59 per cent shares within the agency, in addition to different traders, boosting their confidence within the firm.
This might enhance firm share value and valuation, benefiting the federal government essentially the most.
This route may even permit the corporate to retain a good amount of cash for spending on discovering oil and fuel in unexplored areas and bringing even smaller sources to manufacturing which can in the end assist the nation lower down on its imports, sources mentioned.
India first imposed windfall revenue tax on July 1, becoming a member of a rising variety of nations that tax tremendous regular income of vitality corporations. Export duties of Rs 6 per litre (USD 12 per barrel) have been levied on petrol and aviation turbine gasoline and Rs 13 a litre (USD 26 a barrel) on diesel. A Rs 23,250 per tonne (USD 40 per barrel) windfall revenue tax on home crude manufacturing was additionally levied.
The duties have been partially adjusted within the 5 rounds on July 20, August 2, August 19, September 1 and September 16, and have been eliminated for petrol exports.
Tax on domestically produced crude oil presently is Rs 10,500 per tonne whereas export responsibility on diesel is Rs 10 a litre and that on ATF is Rs 5.
Sources mentioned ONGC believes that permitting free market pricing of oil and fuel will assist appeal to huge corporations with technical knowhow and monetary muscle tissue.
An ad-hoc tax provides to fiscal uncertainties for traders, they mentioned.
Following the same precept, the federal government must also permit corporations to find market value for pure fuel and tax solely positive aspects accruing over and above a minimal USD 10 per mmBtu threshold.
Whereas crude oil is priced at parity with worldwide charges, the federal government presently fixes the worth of pure fuel bi-annually primarily based on charges prevailing in gas-surplus nations just like the US and Russia. Even this fuel value fixation is now being reviewed with a view to deliver down the charges for customers.
The price of producing fuel from deepsea and troublesome areas comparable to high-pressure, high-temperature fields may be very excessive and any try and artificially management charges would result in investments in such fields turning into economically unviable, they mentioned.
ONGC has informed the federal government that it not too long ago found a value of USD 22 per mmBtu that customers have been keen to pay for its coal-bed methane (CBM) fuel. The federal government may look to tax any value that accrues over and above USD 10, sources mentioned.
The federal government-dictated fuel value for ONGC’s legacy fields is USD 6.1 per mmBtu for the six-month interval ending September 30. The speed is near USD 10 per mmBtu for troublesome fields comparable to deepsea. These charges are anticipated to climb to over USD 9 per mmBtu and USD 12 respectively from October 1.