Oil cess, duty cut on anvil to bailout OMCs

By Shereen Bhan, CNBC-TV18

Oil Minister Murli Deora will meet the Prime Minister at noon today on oil prices, reports CNBC-TV18 quoting Newswire 18.

On May 28, the government had a three-hour long meeting attended by Finance Minister P Chidambaram, Petroleum Minister Murli Deora and Deputy Chairman of the Planning Commission Montek Singh Ahluwalia. There was no announcement on bailout package for OMCs and no comment on whether a decision had been taken for a bailout package for OMCs. Oil is not on the agenda for the May 29 Cabinet meeting.

There was talk of a cess, which the Finance Ministry came out and denied. But the Oil Minister has gone on record to say that it was something that was discussed and the cess will go down well with the Left parties. The Left is okay with taxing the rig as opposed to letting the burden of the oil subsidy fall on to consumers. So, the cess may not be such a bad idea from the Left’s point of view.

It is going to have to be a combination of several things. The oil bonds cannot do it any longer. There is a Rs 2,00,000 crore hole that the government needs to fill but the oil bonds are not going to be sufficient. It is going to have to be a price hike; it may possibly be a cess or duty rationalization. The Petroleum Ministry had asked for zero duty on petroleum products. That is not likely to happen and what they are willing to settle is 40-50% cut. Now, it is going to be a combination of all of these factors. But there was supposed to be a meeting this morning that has not taken place.

In the afternoon, there could be something that could happen with the Ministers and interministerial meeting.

A conclusion to the issue is unlikely in today’s session because Delhi, the political capital, is being rocked by Gujjar protests. They are trying to cut off the National Capital Region and the Gurgaon area from the capital. So, the cabinet mindspace at this point in time is also going into how to tackle that situation. So, one does not know whether or not we are actually going to see a decision on oil.