pricing reforms for the petroleum sector 26 th july 2006 industries limited ril’s existing...
TRANSCRIPT
Pricing reforms for the Petroleum SectorPricing reforms for the Petroleum Sector
26th July 2006
Industries Limited
RIL’s Existing Refinery At Jamnagar, Gujarat
www.ril.com 2
Petroleum Pricing – Intent vs Reality
GoI PolicyGoI Policy
Market Determined Pricing for MS & HSD
Subsidy only for LPG & SKO
Transparent subsidies
Level Playing Field for all Players
Ground RealitiesGround Realities
GoI control on the Prices
Subsidy on MS & HSD in additional to SKO & LPG
Complex and opaque subsidies
Subsidies available only to PSUs killing Competition
Driving Private Sector out of
Petroleum Marketing
www.ril.com 3
Non Level Playing Ground
?
Private Companies are
left with an Under
Recovery of Rs 3.39 /
Litre on MS and Rs
5.77 / Litre on HSD
MS HSD SKO LPG TOTAL
8390 37940 19403 7779 73512
3107 6289 9396
Less Shift to Trade Parity 1189 5248 6437
4094 26403 19403 7779 57679TKL/ TMT 12078 45734 11926 9844 79581
Rs/ltr or kg. 3.39 5.77 16.27 7.9 7.25
GoI Estimates
Annual Volume
Net Under Recovery
Rs Crs
UNDER RECOVERIES
Pre Revision
Less Price Increase
Gross Under recovery
57679
3000
28000
24000
2500
57500
179
How PSUs are covered fully
Total Coverage
Uncovered Under recovery
Rs Crores
Upstream Assistance
Total Under recovery Post Revision
PDS SK Limited to BPL with increased allocation
Oil Bonds
Discounts from Refineries
www.ril.com 4
Under Recovery : Our Estimates
Till June'06 Balance
MS 12,805 1,906 6,958 8,864 6,922
HSD 51,136 8,759 35,542 44,301 8,663
SKO (BPL) 11,926 4,522 15,514 20,036 16,800
LPG 9,844 2,211 15,642 17,853 18,137
TOTAL 17,398 73,655 91,053
Upstream 24,000 Bonds announced 28,000 Budget * 2,400 Refineries 2,500
Additional Bonds Required
34,153
Provisions (Rs. Crs) :
Rs / SUProduct Volume (TKLs/TMTs)
TOTAL Rs. Crores
Under Recovery
More Government Support UNAVOIDABLE
www.ril.com 5
Co-existence taxes & non transparent subsidies
Co-existence of taxes and non-transparent
subsidies – Lowering of taxes or, alternatively
issue of oil bonds to all players in proportion to
domestic sales.
MS HSD TOTAL
8864 44301 53165
19420 26623 4604313745 32195 45940
2006-07 EstimatesRs Crores
STATE GOVERNMENT
UNDER RECOVERIES
TAX COLLECTION
CENTRAL GOVERNMENT
www.ril.com 6
Reduction in Excise Duty
ProductAd Valorem Specific *
(Rs./KL)Ad Valorem Specific *
(Rs./KL)
MS 8.16% 13260 NIL 7140HSD 8.16% 3315 NIL 3060Estimated Revenue (Rs. Crs)Shortfall (Rs. Crs)Estimated Under Recoveries (Rs. Crs)Savings in Under Recoveries (Rs. Crs)* Including Road Cess on MS HSD
# Figures based on assumed implementation of suggestion from 1st Aug'06
1450553164
Current Suggested #
46043 315381450538659
Alternative to Additional Bonds is Reducing Duty
www.ril.com 7
Can we reduce Sales tax as well ?
Product
Ad ValoremSpecific (Rs./KL) Ad Valorem
Specific (Rs./KL)
MS 27.02% 251.21 20% NILHSD 21.41% 168.52 12% NILEstimated Revenue (Rs. Crs)Shortfall (Rs. Crs)Estimated Under Recoveries (Rs. Crs)Savings in Under Recoveries (Rs. Crs)
Current Suggested #
45940 34825111164288710277
53164
Uniform Sales Tax / VAT in States eliminates
cross border distortions
www.ril.com 8
To Conclude….For Oil Industry to Survive
Energy is critical and needs critical corrective steps for a sustainable future
For a robust Oil Industry avoid opaque and partisan subsidies by:
Reducing Excise Duty on MS and HSD
Levying Specific duty on MS and HSD
Reducing the Sales Tax levels
Introducing uniform levels of sales tax/VAT on petroleum products in all states
www.ril.com 10
Options for a Private Company
RSP was increased to maintain a differential RSP was increased to maintain a differential of Rs 2.50 per Litre in both MS and HSD of Rs 2.50 per Litre in both MS and HSD
Market Share dropped to <2% from 15%
Company Investment of 4000 Crores and Dealer Investment between 1.5 - 2 Crores per RO : Idling
Transporter (3745 Trucks) Investment of Rs 524 Crores Idling
55,000 Jobs at Risk
Competition will die
Consumer expectation on world class Q & Q will die a premature death
Continue Marketing & Continue
Absorbing Losses
Reduce Volume Increase Prices
OR