Pradhan defends oil PSUs after CAG rap
Jul 31 2014 , New Delhi
The Comptroller and Auditor General of India (CAG) in its latest report stated that Indian Oil Corp (IOC), Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) overcharged customers by Rs 26,626 crore from 2007-08 to 2011-12 by charging notional levies like customs duty on fuel they sold.
Speaking at a workshop on margin management, Pradhan defended the pricing methodology followed by oil firms of calculating the desired retail price in a manner as if the product was imported - adding customs duty, freight, insurance, ocean loss and wharfage charge to prevailing international price of petrol, diesel, LPG or kerosene.
This they do because, they import nearly 80 per cent of their raw material (crude oil) need and pay import parity price for the oil they buy from domestic producers.
The retail price for diesel, LPG and kerosene has always been lower than cost and the difference has been met through subsidy support.
"Oil marketing companies in the same five year period had to absorb Rs 28,680 crore (as government subsidy and dole from upstream firms like ONGC was not enough to cover the cost)," he said.
Besides, they paid income tax of Rs 15,900 crore and dividend of Rs 9,284 crore to the government in 2007-12. After taking Rs 28,680 crore loss they absorbed, the cash outflow for them on these accounts totalled Rs 53,864 crore.
"Oil Marketing Companies (OMCs) do not incur bulk of these expenses (like customs duty) as majority of the products are processed in OMC refineries rather being imported," CAG had said in its report.
Currently, there is no customs duty on crude oil while a 2.5 per cent import duty is charged on inward shipment of petrol and diesel. During post part of the audit period, crude oil attracted a 5 per cent customs duty, while a 7.5 per cent import duty was levied on products.
"In financial terms, import related elements charged at refinery gate on regulated products produced in refineries over and above the FOB (or import) price during 2007-12 worked out to Rs 50,513 crore," it said.
While there is no customs duty on crude oil, other costs like freight and insurance are incurred on import of the raw material.
CAG said the import related expenses on import of crude oil were estimated at Rs 23,887 crore.
"Thus, even after deduction of relevant expenses incurred in import of crude oil during 2007-12, OMCs ought to have benefited by Rs 26,626 crore," it had added.