India first imposed windfall profit tax on July 1, joining a growing number of nations that tax super normal profits of energy companies. Export duties of Rs 6 per litre (USD 12 per barrel) were levied on petrol and aviation turbine fuel and Rs 13 a litre (USD 26 a barrel) on diesel. A Rs 23,250 per tonne (USD 40 per barrel) windfall profit tax on domestic crude production was also levied.
The duties were partially adjusted in the five rounds on July 20, August 2, August 19, September 1 and September 16, and were removed for petrol exports. Tax on domestically produced crude oil currently is Rs 10,500 per tonne while export duty on diesel is Rs 10 a litre and that on ATF is Rs 5.
ONGC believes that allowing free market pricing of oil and gas will help attract big companies with technical knowhow and financial muscles. An ad-hoc tax adds to fiscal uncertainties for investors, they said.
Following the similar principle, the government should also allow companies to discover market price for natural gas and tax only gains accruing over and above a minimum USD 10 per mmBtu threshold.
While crude oil is priced at parity with international rates, the government currently fixes the price of natural gas bi-annually based on rates prevailing in gas-surplus nations like the US and Russia. Even this gas price fixation is now being reviewed with a view to bring down the rates for consumers.
The cost of producing gas from deepsea and difficult areas such as high-pressure, high-temperature fields is very high and any attempt to artificially control rates would lead to investments in such fields becoming economically unviable, they said.
ONGC has told the government that it recently discovered a price of USD 22 per mmBtu that users were willing to pay for its coal-bed methane (CBM) gas. The government could look to tax any price that accrues over and above USD 10, sources said. The government-dictated gas price for ONGC’s legacy fields is USD 6.1 per mmBtu for the six-month period ending September 30. The rate is close to USD 10 per mmBtu for difficult fields such as deepsea. These rates are expected to climb to over USD 9 per mmBtu and USD 12 respectively from October 1.