Indian Oil, HPCL, BPCL flat even as govt may announce calibrated correction in windfall gains tax

Shares of state-run oil marketing companies (OMCs) — Indian Oil, BPCL and HPCL — largely traded flat on Tuesday, amid reports the government is likely to use funds mobilised from windfall gains tax to help PSU OMCs stay in shape. The government is likely to announce a calibrated correction in windfall gains tax levies as the international crude prices have shown marginal correction in the last fortnight, sources told CNBC-TV18 on Tuesday.

The petroleum ministry is likely to make an announcement regarding the same over the next few days. The government believes that public sector OMCs need help as they have incurred a loss of Rs 18,500 crore in the April to June quarter, sources said, adding that rising inflation and volatile fuel prices may pose an additional burden on the companies.

A Bloomberg report suggests that the government plans to pay about Rs 20,000 core ($2.5 billion) to the state-run fuel retailers, such as Indian Oil Corp., to partly compensate them for losses and keep a check on cooking gas prices.

The three biggest state-run retailers HPCL, BPCL and Indian Oil together supply more than 90 percent of India's petroleum needs. These have suffered the worst quarterly losses in years by absorbing record international crude prices, the Bloomberg report noted.

The oil ministry has sought a compensation of Rs 280 billion, but the finance ministry is agreeing to only about a Rs 200 billion cash payout, the report said citing sources who added that the talks are at an advanced stage but a final decision is yet to be taken.

Effective September 1, the government had for the fourth time raised the windfall profit tax on the export of diesel to Rs 13.5 per litre from Rs 7 per litre. The tax on aviation turbine fuel (ATF) exports was hiked to Rs 9 from Rs 2 per litre. The export duty on petrol was scrapped following the first fortnightly review on July 20.

Therefore, as things stand, OMCs are taking losses for every litre of diesel being sold but not losing anymore due to petrol.

Sources cited above, told CNBC-TV18, that the government is contemplating a mechanism to funnel funds to OMCs. The government stakeholders shall soon discuss the contours of the financial aid mechanism for these companies.

They also added that the windfall tax mop-up was meant for exigencies and not to meet fiscal requirements.

Last week, Finance Minister Nirmala Sitharaman defended the windfall tax on domestically produced crude oil and additional tax on exports of refined petroleum products, saying the levy was imposed in full consultation with the industry.

“So the belief that windfall tax is ad hoc is slightly unfair. Because the price and the taxation rate decided are arrived at after full consultation with the industry. We’ve come up with these parameters based on cracks margins that the industry has given to us,” she told a summit organised by Elara Capital on September 5.

Separately, sources have also said that the government may give additional Rs 25,000-30,000 crore subsidy for LPG.