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Finance ministry refused issues of reducing excise duties
October, 25th 2010

The finance ministry has refused to budge on the issue of reducing excise duties on branded fuels, leaving the national oil companies to struggle with falling sales of premium brands of petrol and diesel.

The petroleum ministry has supported the case for reducing the excise duty on branded petrol and diesel such as Indian Oil's XtraPremium and XtraMile and Bharat Petroleum's Speed to the same level as the normal brands in order to increase the sale of these premium fuels, which cause lesser pollution.

However, the finance ministry appears to be looking at them as fuels for the rich to continue levying higher taxes.

"No progress has been made on the issue as yet but the petroleum ministry is in favour of reducing the high level of excise duty," petroleum secretary S. Sundareshan told MAIL TODAY . According to senior Indian Oil Corporation (IOC) officials, the higher excise duties on premium petrol and diesel have led to a substantial increase in their price vis- -vis the normal variants and this has resulted in customers switching to cheaper fuels.

While the cost of production of the premium fuels is higher than that of the normal varieties most of the price difference at the retail filling stations is accounted for by the higher excise duties on these products.

"This leaves the oil companies with a wafer thin margin of profit that hardly makes it worth their while to keep marketing these products," an IOC official said.

The price of XtraPremium petrol being sold at IOC filling stations in Delhi is Rs 55.05 per litre, which is Rs 2.50 higher than the price of normal petrol at Rs 52.55 a litre.

IOC officials lament that around Rs 2 per litre of this difference is accounted for by the higher excise and state levies on the branded fuel.

Similarly, XtraMile diesel is priced at Rs 39.56 per litre in the capital compared to Rs 37.71 a litre for normal diesel.

The oil firms cannot go in for an increase in the price of these products as it would only lead to a further fall in sales in the highly price-sensitive Indian market. A senior IOC official said the share of the firm's XtraPremium sales has come down to 15 per cent of its total petrol sales while it was over 20 per cent earlier.

Similarly, the sales of XtraMile diesel have plummeted to less than five per cent of IOC's total diesel sales from 11 per cent earlier, he disclosed.

A senior BPCL official also said sales of its premium Speed brand of petrol had fallen from 20 to 25 per cent to around 15 per cent of total sales.

Officials of oil firms claim that they are continuing to market these premium fuels since they have already been launched and provide the consumer with a choice. " We have drastically reduced the advertising expenditure on premium fuels in order to cut costs and make the two ends meet," an IOC official said.

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