New Delhi: The government is likely to regulate domestic crude on Wednesday to address market anomalies, boost government’s tax revenue and help producers like ONGC and Oil India Ltd get better realization of the crude they produce. Yes, the sources said.
The center currently decides which state-run refinery How much crude oil does each producer get? Price is then worked out on a traditional formula with Brent as a marker, rather than the global practice of ‘five-cut’ – or the yield of the five most commonly used refined products – criteria. The allocation is done every six months.
Sources said that for a company like ONGC, the deregulation would increase the total realization from each barrel of crude by about 5%. Pumped crude oil yield from Mumbai High may increase by 7-8% due to higher quality and yield.
Better realization will also boost the royalty and cess income of the government as they are charged as a percentage of the price. Cess is pegged at 20%, while royalty is pegged at 20% onshore and 10% for offshore production. Higher royalty and cess income will offset some of the government’s Rs 1 lakh crore revenue loss due to reduction in excise duty on petrol and diesel.
Former ONGC Chairman and Director (Finance) Subhash Kumar said the deregulation will help the downstream investments to meet their optimum objectives keeping in mind the specific crude sources.
Former petroleum secretary Tarun Kapoor, now advisor to the prime minister, has been pushing for deregulation during his tenure. The current system reduces earnings from each barrel because pricing is biased in favor of refiners’ production plans based on refinery configuration rather than the actual quality of a particular oil. Sub-optimal receipts also affect the government’s royalty and cess income.
A study by the Petroleum Planning and Analysis Cell sometime back also supported the regulation of domestic crude and projected an 8-10% increase in realizations from ONGC’s Mumbai High Crude.
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