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India plans to rationalize import duties

The Indian government has on the recommendations of the prime minister’s energy coordination committee announced plans to rationalize import duties on crude oil, petroleum products and auto fuels to 5%. The current duty on crude oil is 5% and on transportation fuel 7.5%. Refiners say they will lobby against the proposal as it would cut their margins by half. The government said the move is aimed at protecting oil marketing companies, whose under recoveries amount to more than US$12 billion in the current fiscal year. While oil marketing companies (OMCs) support the government proposal, local refiners and the Petroleum Ministry are unhappy with the plan, saying it could sabotage the on going build up in Indias refinery sector. The government introduced subsidies on LPG and kerosene in order to protect Indias poor. The subsidy was to be phased out after India adopted an open market policy in 1991. The subsidy was equal to the difference between the cost price and the issue price as of March 31, 2002, and was supposed to be phased out in three to five years. OMCs had to adjust the retail selling prices of these products in line with international oil prices, leading to large under recoveries and hurting their profits. Due to political reasons, the subsidy was never eliminated. Instead, the Finance Ministry has allocated oil bonds worth US$4 billion to compensate OMCs. (February 14, 2007)