FACED with unprecedented growth in the demand for diesel, the government is examining the possibility of diverting to the domestic market 2 million tonnes out of the 11 million tonnes a year of diesel that Reliance’s Jamnagar refinery exports. The proposal also envisages extending deemed export status to such domestic sales, on the lines of the benefit extended to the Jamnagar refinery’s sales of cooking gas (LPG) to the domestic market. The proposal envisages a sale price for such diverted diesel which is below the price of imports, offering savings to the oil marketing companies, and higher than the export price, offering gains to Reliance as well.
This proposal has been put forth by the oil industry body, Petrofed, which has urged both the commerce and finance ministries to examine the issue. RIL’s Jamnagar refinery is a 100% export-oriented unit (EOU). It enjoys tax concessions on exports. RIL would lose some EOU benefits if exports were to be diverted to domestic sales, without giving such sales deemed exports status.
It may be recalled that the Samajwadi Party general secretary Amar Singh had included the cancellation of EOU status for refineries as one of the measures to resolve the domestic oil crisis. The proposal on the table does not tamper with the refinery’s EOU status. Petroleum ministry officials are not opposed to the idea put forth by the industry. “We have no issues on the proposal of diverting some amount of diesel from the EOU refinery to the domestic market. It is up to RASHMI the commerce and finance ministries to work out the arrangement,” an official said. Sources said the matter had been discussed informally with RIL which is willing to consider the proposal if it is tax-neutral. Said a senior petroleum ministry official: “The tax incidence for RIL would work out to be around Rs 2.71 per litre on diesel. This will have to be waived if we were to ask RIL to sell in the domestic tariff area.” Normally, domestic sales from an EOU have to bear Customs and excise duties on the product, besides income tax on their profits. “We have written to Director General of Foreign Trade to examine whether a small amendment can be made by which RIL could help meet some part of the growing diesel demand,” a PSU oil honcho said. Diesel demand has been growing at over 25% over the past 3-4 months. A portion of the shortage, to the extent of spot purchase from the global market, is what the industry wants to procure from RIL.
Oil companies, which have been importing cargoes to meet the increased diesel demand, say that getting the fuel from the spot market often turns out to be more expensive and may even not be available. “RIL can divert about 2 million tonnes as of now to plug this gap,” a source said. The industry would like RIL to sell diesel in the domestic market at a weighted average of export and import prices, called the trade parity price. For the PSU oilcos, buying from RIL at trade parity prices would mean a saving of Rs 1,000 per tonne on the cost. For RIL too, selling at trade parity should be higher than exporting.
FREQUENT FUEL PRICE REVISION
The BK Chaturvediheaded panel on fuel subsidies is believed to have concluded that fuel prices should be revised more frequently, but in modest measures to keep domestic prices in line with global trends.
Inventory gains to lift RIL profit
INVESTORS and analysts are keeping their fingers crossed as they await the quarterly results of India’s largest private sector company — Reliance Industries (RIL). Analysts expect RIL’s profit growth to vary substantially between 9% and 30%. In fact, a customary Bloomberg survey revealed that analysts expect a 24% profit growth over the year-ago period, while a similar exercise by Reuters came out with a much lower profit growth expectation of 14%. A lot will depend on how the company has treated its inventory gains and whether it has suffered any forex losses. Although there are differing views on RIL’s Q1 profits, most agree that RIL’s refinery business will put up a good show, while the petrochemicals business will suffer. While gross refining margins (GRMs) have remained strong globally during the quarter, margins in petrochemicals business have weakened due to high naphtha prices. Petroleum refining contributed around 64% to the company’s total revenues in FY08 against 34% from petrochemicals. “We are expecting RIL to post $16/bbl GRM in the June 2008 quarter. The petrochemicals margins will be lower due to high naphtha prices, but the net profit should jump 27% to Rs 4,150 crore. The future outlook is positive for the company due to production from KG basin and Reliance Petroleum (RPL) to start production from Q3FY09,” said Sudeep Anand, research analyst working with Religare Securities. The private sector refiner is expected to benefit from the rise in the prices of crude oil and petroleum products during the June 2008 quarter, allowing it to book inventory gains. “It is mainly inventory gains that are pushing up GRMs of Indian refiners. When RIL publishes Q1 results on Thursday, we believe they may choose not to account for these inventory gains because of fear that high profits could invite a tax on windfall gains,” felt an industry observer.
“We are estimating $18-$19 as GRMs for RIL. However, they could cross $20 depending on inventory gains.
On the other hand, profit from petrochemicals should be lower than the previous quarter,” said a research analyst working with a Mumbai-based international investment bank. Going forward, two major projects are scheduled for commissioning over the next six months, which will drive profit growth for the company. RIL’s 70% subsidiary, RPL, is set to commission its 580,000 barrels per day (bpd) refinery, while its KG basin natural gas fields are likely to commence production anytime soon. On Wednesday, RIL scrip gained 5.16% to Rs 2,265 in a euphoric market, when the Sensex spurted 5.94%.
REFINED PLAY
Analysts expect net growth to vary between 9% & 30% Co to benefit from rise in prices of crude oil and petroleum products Refinery business to put up a good show, but petrochem may suffer, feel analysts
No comments:
Post a Comment