CAG flays oil firms for overcharging customers by Rs 26,626 cr

Oil firms chared notional levies like customs duty on fuel they sold

The Comptroller and Auditor General of India (CAG) has castigated state-owned oil firms for overcharging customers by Rs 26,626 crore in five years by charing notional levies like customs duty on fuel they sold.

CAG in its audit report on 'Pricing Mechanism of Major Petroleum Products in Central Public Sector Oil Marketing Companies', said price of petrol, diesel, domestic LPG and kerosene is calculated by adding customs duty, freight, insurance, ocean loss and wharfage charge to prevailing international price of these products.

Oil companies import crude oil which is processed and converted into fuel and not these products. "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 said.

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 in a report tabled in Parliament on Friday.

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 said.

CAG said customs duty made up for 56 per cent of the Rs 50,513 crore from notional elements in the price of fuel.

Of the Rs 50,513 crore charged by way of notional levies, Indian Oil Corp (IOC) got Rs 30,557 crore, Bharat Petroleum Corp Ltd (BPCL) Rs 12,045 crore and Hindustan Petroleum Corp Ltd (HPCL) Rs 7,911 crore.

CAG said nearly 20-22 per cent of the crude oil used by OMCs for producing fuels like petrol and diesel, is procured indigenously ie from domestic oilfields. "Associated costs for procuring crude indigenously are lower than the cost of import," it said.

The auditor said OMCs were expected to derive a price advantage with the Rs 26,626 crore additional they got.

"However, this advantage does not appear to have been translated adequately in terms of efficiency improvements in refining margins, optimisation of costs of production and improvements in yields. This, in turn, is sought to be attributed almost entirely to inherent problems of PSU refineries, viz., vintage, uneconomical size, limitation of configuration, etc," it added.