State-owned oil producers ONGC and Oil India as well as private sector Cairn India have asked the Government to cut cess on crude oil they have to pay in view of slump in prices.
The producers want the government to levy ad-valorem rate of cess which will result in higher payouts when prices are high and lower payout when rates fall. Currently, ONGC and OIl pay a cess of Rs4,500 per ton on crude oil they produce from fields given to them on nomination basis. Cairn has to pay the same cess for oil from Rajasthan block.
Their association, PetroFed last week wrote to Revenue Secretary Hasmukh Adhia and Oil Secretary KD Tripathi seeking levy of 8 per cent cess on price of crude oil realised.
The Oil Industry (Development) Act, 1974 provides for collection of cess as a duty of excise on indigenous crude oil. Cess incurred by producers is not recoverable from refineries and thus forms part of cost of production of crude oil. The cess was levied at Rs60 per tone in July 1974 and subsequently revised from time to time.
“During 2005-06, when the crude oil prices had increased from an average of $40 per barrel to $60 per barrel, OID Cess was increased from Rs1,800 to Rs2,500 per ton from March 1, 2006.
“Again, when the crude oil prices increased to over $100 per barrel, the rate of cess was increased by Government to Rs4,500 per ton ($10 per barrel) with effect from March 17, 2012,” PetroFed wrote. It said the Government had effectively linked the cess rate to prevailing crude oil prices in the past.
“The crude oil prices have not been for sometime around $40 to 50 per barrel while the cess continues at the same rate as prevailing when crude oil was around $100 per barrel. In a low crude oil price regime, cess imposes a significant economic burden on producers,” it said. The producers said the current cess rate constitutes about 20 per cent of the oil price, which has severely impacted several small discoveries and marginal fields making many of the projects unviable.