Cess hike on crude oil will impact profits: ONGC

New Delhi: State-owned Oil and Natural Gas Corp (ONGC) on Friday said its profitability will be impacted by Rs 4,500 crore as Finance Minister Pranab Mukherjee raised cess on crude oil production.

"The effect of increase in cess on crude oil (from Rs 2,500 per ton to Rs 4,500 per ton) is about Rs 4,500 crore annually," ONGC Chairman and Managing Director Sudhir Vasudeva said on sidelines of 7th Asia Gas Partnership Summit.

The company wants the government to adjust the higher cess rate with the fuel subsidy it bears.

Upstream firms like ONGC have to meet a part of revenue that fuel retailers lose on selling diesel, domestic LPG and kerosene at government controlled rates. They made good about 38 per cent of Rs 97,300 crore that Indian Oil, Bharat Petroleum and Hindustan Petroleum lost on fuel sales in first nine months of current fiscal.

"We have written to the government that the effect of cess burden should be adjusted by reduction in our subsidy payout," he said. "We should be neutral."

Vasudeva said higher cess along with increased rates of service tax and excise duty will bring down ONGC's profit before tax by Rs 5,000 crore. "We have requested that our (upstream) subsidy burden should be adjusted accordingly."

The near doubling of cess rate on crude produced in the country will burn a hole of Rs 6,000 crore in the pockets' of upstream oil companies ONGC, Oil India Ltd, Cairn India Ltd, and Reliance Industries Ltd.

The cess, levied as per the Oil Industry (Development) Act, 1974, was last revised in the Union Budget 2006-07.

Oil India Director-Finance TK Ananth Kumar said the hike in cess on crude oil will have an impact of around Rs 750-800 crore on the company's annual profitability.

During April-December, upstream firms paid Rs 36,900 crore in fuel subsidy. ONGC alone had to bear Rs 30,296 crore, which is 42.3 per cent more than the payout a year ago.

State-owned fuel retailers IOC, HPCL and BPCL lost Rs 97,300 crore on sale of diesel, domestic LPG and kerosene at regulated rates during April-December, and are estimated to lose around Rs 137,000 crore in full 2011-12 fiscal.

The government has so far provided only Rs 45,000 crore in cash subsidy for the first three quarters. Another Rs 15,000 crore is likely to come once the Parliament approves additional spending for current year.