The Pipeline Charts The Flow

"It is among a number of questions raised that are being examined," admits B.K. Chaturvedi, chairman of the panel looking into the health of the state-owned oil marketing companies. Needless to say, they have been hit hard by the mismatch in the global price of crude and the controlled retail price of transport and cooking fuels.

Declining to say more ahead of his report expected later this month, Chaturvedi did stress that many countries like China, the UK, Australia, and Bolivia have put in place measures to mop up the excess gains generated due to high crude prices. In some cases, these funds are being reinvested in the oil sector; in the UK, they are used to provide relief to consumers. The benchmark, though, is the US experience—a windfall tax imposed from 1980-88 saw in turn a flight of investment. Efforts to reintroduce a re-modified tax proposal have not passed muster.

Ex-petroleum secretary T.N.R. Rao says, "As a concept, taxing windfall gains is nothing new. Just that now it looks political." During the NDA regime, for instance, the Expenditure Finance Commission Report had recommended that the "adventitious gains" of oil firms be mopped up suitably and a market stabilisation fund be set up. A panel member, Rao says, "It’s equivalent to capital gains tax. It ought to be taxed." Similarly, at a time when import-dependent countries like India are urging oil-producing countries to increase output to cool the market, there are many who support the SP view of stopping exports by private refining companies (read: Reliance Industries). Yet, there is no way an export-oriented unit (EoU) status can be scrapped before review in five years, point out officials. In Reliance’s case, the review comes up in 2009.

On the face of it, there is merit in the opposition to allowing private exploration and production (E&P) companies—like ril, Cairn Energy, British Gas, Essar Oil and so on—selling their produce at market prices, while state-owned ONGC and Oil India provide ‘discounted’ oil to refining and marketing companies by way of subsidy sharing. This subsidy was around Rs 25,000 crore last year; this year it is likely to be Rs 45,000 crore. Sure, the share of oil produced by private and joint venture companies is less than 15 per cent—a small but still significant share.

The counterview is that this is a tax on corporate efficiency. Moreover, in the case of E&P, the government’s share in profits increases once the private firms have recouped investment costs—thus it makes sense to allow them to charge higher rates. "All it means is that the government would probably have to issue smaller amounts of bonds (to the oil marketing firms)," adds Planning Commission member Kirit Parikh, who doesn’t see much gain from a windfall tax or a discounted oil price. There’s also the issue of opaqueness on tax matters. But remember, history has shown us that politics mixes well with oil.