Budget 2022| Petrol may cost more as additional duty of Rs 2/litre to be imposed on unblended fuel from Oct 1

Unblended petrol and diesel could become more expensive as the government plans to impose an additional differential excise duty of Rs 2 a litre on it.

The Union Budget left the excise duty on fuel unchanged and introduced an additional differential excise duty of Rs 2 a litre on the unblended variant from October 1.

“Blending of fuel is a priority of this government. To encourage the efforts for blending of fuel, unblended fuel shall attract an additional differential excise duty of Rs 2 a litre from the 1st  day of October 2022,” Finance Minister Nirmala Sitharaman said Tuesday.

Blended fuel refers to petrol or diesel, which is blended with other liquids like ethanol to be used in automobiles. Vehicles running on blended fuel generate less emissions.

“With crude at more than $90 a barrel, there may be significant under-recovery building in oil marketing companies as the retail fuel prices have not been increased in three months. So when this additional duty comes into effect, prices of non-blended retail fuel may go up significantly in coming days” Debasish Mishra, partner and leader- energy, Deloitte India, told Moneycontrol.

The benchmark Brent crude futures have breached the levels of $90 a barrel, their highest levels since 2014. Prices have been rising from lows of $68 in the beginning of December as demand remained strong, unperturbed by the rapid spread of the Omicron variant of the Covid virus, even as global supply remained tight.

The geopolitical tension in West Asia and the threat of a Russian attack on neighbouring Ukraine has intensified concerns over supply disruptions. Brokerage Goldman Sachs expects crude oil to reach $100 per barrel in the last two quarters of 2022.

State-run oil marketing companies, which account for 90% of the fuel retail market, blend fuel with varying degrees of ethanol. They currently blend it with 8-10% of ethanol but the country has plans to sell fuel with 20% blending by 2025.