Fuel exports rise in FY23; refiners stay healthy despite addl excise

Hike in excise duty on fuel was imposed after private refiners made a killing exporting the dirt cheap Russian fuel available to them at elevated prices

The decision by the government on Friday to impose special additional excise duty on exports of petrol and diesel has got mixed responses. The move sought to address the issue of fuel shortage. While private players were concerned, official data indicates that the export of petrol and diesel from the country rose by 13 per cent and 20 per cent respectively so far this year in terms of quantity.

A special additional excise duty (SAED) of Rs six per litre was imposed on aviation turbine fuel (ATF), whose exports were up 16 per cent during the first two months of the fiscal. Experts indicate that, even after the rise in duties, refiners are in a profitable terrain.

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After the Ukraine war broke out, private refiners such as Reliance Industries and Rosneft-backed Nayara Energy were reportedly making huge profits exporting fuel to deficit countries in Europe, and to the US and Australia. The huge benefits came as Russian crude was available to them at a huge discount. It was highlighted that the refiners were exporting petrol and diesel globally prevailing prices, which are very high. According to the government, to reap benefits out of these exports, refiners were drying out their pumps in the domestic market.

Petrol exports increased from 2.27 million tonne (MT) during the first two months of 2021-22 to 2.56 MT during the same period in the current financial year. Similarly, the export of diesel increased to 5.76 MT in April-May 2022-23, from 4.82 MT during the year-ago period. An industry source said the numbers would have been much higher in June as the fuel shortage had peaked then. The current decision is likely to drive exports down.

In rupee terms, the exports of petrol more than doubled to Rs 23,522 crore during the first two months of 2022-23 from Rs 10,917 crore a year ago. For diesel, this rose even further from Rs 19,047 crore during April-May last fiscal to Rs 50,289 crore this year. In 2021-22, India exported a total of 13.5 MT of petrol and 32 MT of diesel respectively.

“Export duties impact 3-4 players such as Reliance, Nayara, Mangalore Refinery & Petrochemicals (MRPL) and Chennai Petroleum Corporation (CPCL). Despite the rise in duties, the overall gross refining margins and crack spreads remain very robust. Singapore GRMs are robust now and are expected to remain so as the demand is recovering,” said Prashant Vasisht, vice-president and co-group head, Icra.

The rise in Singapore gross refining margin, averaging over $20 a barrel, was seen as advantageous for Indian refiners who had raised their purchases of Russian crude. India imported about one million barrels per day of crude oil from Russia, up from around 840,000 barrels in May and 388,000 bpd in April. GRM is the amount that refineries earn on converting every barrel of crude into refined petroleum products.

“The export duty was in response to certain refiners drying out their domestic pumps and selling abroad amid all-time high margins. Private players RIL and Nayara will be affected. We estimate a $10 a barrel GRM hit for RIL (including SEZ unit),” said Sabri Hazarika, Senior Research Analyst of Emkay Global Financial Services.