OREANDA-NEWS. February 18, 2011. State-owned oil marketing companies (OMCs) such as Indian Oil Corp. Ltd (IOC) aren’t immediately raising prices of petroleum products, despite expanding losses, in the expectation that the Union government will announce tax cuts in the coming budget.

State-owned OMCs have been selling diesel and kerosene at government-mandated prices, which are lower than the cost of production. While petrol prices were freed from government control last year, state-owned marketing companies are currently selling petrol at a loss because crude prices have risen sharply.

Newly appointed Union petroleum minister Jaipal Reddy recently said the total loss of state-owned oil marketing companies could approach Rs.1 trillion in the current fiscal, which is at least one-third more than initial estimates.

IOC’s losses from the sale of kerosene, diesel and petrol in the current quarter could approach Rs.16,000 crore from around Rs.8,500 crore in the three months till December, according to chairman S.V. Narasimhan. At current prices, state-owned OMCs are losing around Rs.9.55 a litre on diesel and Rs.2 a litre on petrol.

Yet, IOC isn’t immediately raising prices of these products because it, along with other state-owned OMCs, has requested the government to pare taxes, he said. The Union government had, for instance, imposed a 5% customs duty on crude oil last year when its price was low. “But now it should be rolled back in view of the increase in crude prices,” Narasimhan added.

In India, taxes, including customs duty on imported crude, account for about 45-50% of the retail prices of these products, which according to analysts, is quite a bit higher than other comparable oil importing countries.

“We have requested the finance ministry to cut taxes,” said a key official at another state-owned oil marketing company. “But what is more important immediately is that the government releases its share of the subsidy.” He did not want to be identified.

“Taxes in India are indeed higher than most other oil-importing countries,” said Arvind Mahajan, executive director at consulting and audit firm KPMG. “So, the demand for tax cuts is a fair one.”

What is more, the time is right to pare taxes because the Union government has got money from the sale of shares in public sector companies, and “from the standpoint of fiscal balance, it is in a much better situation now than a year ago”, he added.