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FinMin denies oil cess
May, 31st 2008

Emerging after a meeting with the Finance Minister, Petroleum Minister Deora on Tuesday, went public about the possibility of an oil cess.

 All options were discussed. Cess for oil was also discussed. Sunderasan will brief you on that, said Murli Deora, Petroleum Minister.

 Around 24 hours later, the government did a u-turn. In a rare move, the Finance Ministry came out with a strong denial.

 The statement said, "The reports are largely speculative and in particular, reports about certain new tax proposals are totally baseless. Ministry of Finance points out that nobody from the ministry had briefed the media."

 In fact, sources in the Finance Ministry have told CNBC-TV18 that livid Finance Ministry officials have even questioned Deora's jurisdiction in talking about tax matters.

 Interestingly, sources in the Petroleum Ministry have said it was the Finance Minister who insisted that any loss of revenues on account of duty rationalization will have to be compensated. This is perhaps where the idea of a cess came about.

 But Finance Ministry sources have told CNBC-TV18 that "revenue neutrality" is not central to a bailout package.

 So, even as the policy flip flop continues, oil marketing companies like IOC continue to bleed and plead. A helpless IOC Chief has said the company may have to stop importing diesel if there isnt immediate government intervention suggesting possible rationing in the near future.

 We may have to stop importing diesel if the government does not intervene soon, said Sarthak Behuria, CMD, IOC.

 HPCL has said that it may look at stopping diesel imports to reduce the burden, and give its balance sheet some breathing space.

 Talk of a cess would not have been necessary if the Finance Minister had relented on duty cuts. But with oil contributing 40% of indirect tax collections last fiscal, the FM has not surprisingly been cold to the idea of duty cuts. This is despite projections of indirect taxes for this fiscal being pegged at more than Rs 3,20,000 crores.

 Experts say the governments projections were calculated when oil was hovering at not more than USD 75-80 a barrel. Today, with crude above USD 130 the Finance Minister has the revenue cushion to go for duty cuts. Denials of a cess and a price hike do seem to indicate that Chidambaram may not be able to hold his ground for too long.

 What is the latest step the government has taken with regard to the oil crisis?
It 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 tomorrow's Cabinet meeting.

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