The revenue department at the Union finance ministry is delaying clearance to the new petroleum tariff structure (PTS) suggested by an expert technical group headed by Nirmal Singh fearing losses to the exchequer.
This has resulted in a delay in the implementation of the new exploration licensing policy (NELP) which was announced by the finance minister in his 1997-98 budget speech.
Though the revenue department, after initial consultations with the petroleum ministry, has not officially conveyed its views to the ministry, it is learnt to be of the opinion that the implementation of PTS would have major implications for revenue mobilisation.
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The petroleum ministry disagrees with this view. During the meetings between the two ministries, the petroleum ministry has been emphasising that the new structure would bring in more funds because of the favourable tariff structure triggering increased oil exploration and production activity.
The petroleum ministry has said that the current tariff structure is a major stumbling block in increasing production and exploration activity in the country. Most of the foreign oil majors have been asking the government to bring its petroleum tariff structure in line with those prevailing in other countries of the region.
The petroleum ministry has pointed out that the new tariff structure was formulated by the group after thoroughly studying experiences of Thailand, Malaysia, the Philippines and Japan which have undertaken deregulation of the hydrocarbon sector in the recent past.
The ministry agrees that tariff structure has to balance the conflicting requirements of revenue mobilisation for the government and of keeping the prices of an essential input low to contain the cost of production and to improve international competitiveness. Moreover, the tariff structure also needs to ensure that tariff on crude imports is low enough in relation to the tariff on downstream products to avoid any negative rates of protection.
The petroleum ministry has pointed out to the revenue department that the rates of duties suggested by the expert technical group maintain government revenue not only above the current mobilisation, but also at 1.5 per cent of GDP, which is a high figure by international standards. The duty rationalisation, together with the dismantling of the administered price mechanism, will also significantly enhance the revenues from disinvestment in national oil companies as well, the ministry has argued.
The expert technical group has suggested a four-year transition period for implementing the new tariff structure in a phased manner. It has recommended that by 2001-2002, the customs duty on crude should be brought down from 27 per cent to zero, on naphtha it should go up from zero to five per cent, liquefied petroleum gas (LPG) from 12 per cent to 10 per cent, liquefied natural gas (LNG) 12 per cent to zero, motor spirit 32 per cent to 15 per cent, aviation turbine fuel (ATF) 32 per cent to 15 per cent, high speed diesel (HSD) 32 per cent to 15 per cent, furnace oil (FO) 32 to 10 per cent, bitumen 32 per cent to 15 per cent, and others from 32 per cent to 15 per cent.
Regarding excise duty, the group has suggested that by 2001-2002, it should remain unchanged at the current levels for crude, naphtha, LPG, LNG, kerosene, HSD, FO\LSHS, bitumen and others, while it should be changed from 20 per cent to 165 per cent (including suggested surcharge) for motor spirit, and 15 o 40 per cent for ATF.