Seventy five billion rupees. Sounds big, doesnt it? Thats the amount paid by consumers to the refineries in the form of deemed duty in the last seven years. The purpose was to search for better, cleaner and safer fuel by implementing Euro-II standards - aimed at ensuring low-sulphur environment friendly exhaust emissions by diesel vehicles.
Sadly, however, this search has been in vain so far and there are no visible signs that it will be achieved in the near future, either. But as if Rs 75 billion pocketed during FY02-FY09 wasnt enough, the Economic Co-ordination Committee has suggested that refineries collect, from consumers, an additional Rs 1.2/liter of diesel (HSD) to recover the cost of desulphurization project.
Effective January 2010, this collection will be on top of petroleum levy charged on HSD and will be reimbursed each month by the governments finance division on the submission of duly audited claims by the refineries. This means that the consumer will be paying another Rs 25 billion (approx) throughout 2010-2014, in addition to the estimated Rs 45 billion that would be collected on account of deemed duty in the next three years.
It is time for elementary mathematics now. Assuming July, 2009 as the starting period, local refineries would collect roughly around Rs 35 billion by the end of 2012, the cut-off date of implementing Euro-II standard. Now add those Rs 75 billion which have been collected since the introduction of deemed duty and we are talking about Rs 110 billion for a project that will cost the refiners around Rs 42-45 billion by 2012.
It should be highlighted here that the quoted Rs 75 billion is a conservative estimate and it does not account for deemed duty collected on fuel products other than HSD prior to FY04. But the fact that this also contributes in the computation of product prices through indirect taxes deserves a separate story.
ECC suggests that in case of refineries failure to comply with the schedule, they will have to refund the entire amount with the interest back to government treasury. But hold on there. Why should that amount go to the government when, in fact, its the general public who will pay for it? Perhaps a better way out in this context would be to cut retail HSD prices.
But refiners are not entirely to be blamed here, as it is the governments responsibility to ensure fair practices by rationalising the sector. The authorities must not only make sure that Euro-II standards are implemented on time but also ensure it should not be done at the expense of the consumer.
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