Pricing reforms for the Petroleum SectorPricing reforms for the Petroleum Sector

26th July 2006

Industries Limited

RIL’s Existing Refinery At Jamnagar, Gujarat

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Petroleum Pricing – Intent vs Reality

GoI PolicyGoI Policy

Market Determined Pricing for MS & HSD

Subsidy only for LPG & SKO

Transparent subsidies

Level Playing Field for all Players

Ground RealitiesGround Realities

GoI control on the Prices

Subsidy on MS & HSD in additional to SKO & LPG

Complex and opaque subsidies

Subsidies available only to PSUs killing Competition

Driving Private Sector out of

Petroleum Marketing

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Non Level Playing Ground

?

Private Companies are

left with an Under

Recovery of Rs 3.39 /

Litre on MS and Rs

5.77 / Litre on HSD

MS HSD SKO LPG TOTAL

8390 37940 19403 7779 73512

3107 6289 9396

Less Shift to Trade Parity 1189 5248 6437

4094 26403 19403 7779 57679TKL/ TMT 12078 45734 11926 9844 79581

Rs/ltr or kg. 3.39 5.77 16.27 7.9 7.25

GoI Estimates

Annual Volume

Net Under Recovery

Rs Crs

UNDER RECOVERIES

Pre Revision

Less Price Increase

Gross Under recovery

57679

3000

28000

24000

2500

57500

179

How PSUs are covered fully

Total Coverage

Uncovered Under recovery

Rs Crores

Upstream Assistance

Total Under recovery Post Revision

PDS SK Limited to BPL with increased allocation

Oil Bonds

Discounts from Refineries

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Under Recovery : Our Estimates

Till June'06 Balance

MS 12,805 1,906 6,958 8,864 6,922

HSD 51,136 8,759 35,542 44,301 8,663

SKO (BPL) 11,926 4,522 15,514 20,036 16,800

LPG 9,844 2,211 15,642 17,853 18,137

TOTAL 17,398 73,655 91,053

Upstream 24,000 Bonds announced 28,000 Budget * 2,400 Refineries 2,500

Additional Bonds Required

34,153

Provisions (Rs. Crs) :

Rs / SUProduct Volume (TKLs/TMTs)

TOTAL Rs. Crores

Under Recovery

More Government Support UNAVOIDABLE

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Co-existence taxes & non transparent subsidies

Co-existence of taxes and non-transparent

subsidies – Lowering of taxes or, alternatively

issue of oil bonds to all players in proportion to

domestic sales.

MS HSD TOTAL

8864 44301 53165

19420 26623 4604313745 32195 45940

2006-07 EstimatesRs Crores

STATE GOVERNMENT

UNDER RECOVERIES

TAX COLLECTION

CENTRAL GOVERNMENT

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Reduction in Excise Duty

ProductAd Valorem Specific *

(Rs./KL)Ad Valorem Specific *

(Rs./KL)

MS 8.16% 13260 NIL 7140HSD 8.16% 3315 NIL 3060Estimated Revenue (Rs. Crs)Shortfall (Rs. Crs)Estimated Under Recoveries (Rs. Crs)Savings in Under Recoveries (Rs. Crs)* Including Road Cess on MS HSD

# Figures based on assumed implementation of suggestion from 1st Aug'06

1450553164

Current Suggested #

46043 315381450538659

Alternative to Additional Bonds is Reducing Duty

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Can we reduce Sales tax as well ?

Product

Ad ValoremSpecific (Rs./KL) Ad Valorem

Specific (Rs./KL)

MS 27.02% 251.21 20% NILHSD 21.41% 168.52 12% NILEstimated Revenue (Rs. Crs)Shortfall (Rs. Crs)Estimated Under Recoveries (Rs. Crs)Savings in Under Recoveries (Rs. Crs)

Current Suggested #

45940 34825111164288710277

53164

Uniform Sales Tax / VAT in States eliminates

cross border distortions

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To Conclude….For Oil Industry to Survive

Energy is critical and needs critical corrective steps for a sustainable future

For a robust Oil Industry avoid opaque and partisan subsidies by:

Reducing Excise Duty on MS and HSD

Levying Specific duty on MS and HSD

Reducing the Sales Tax levels

Introducing uniform levels of sales tax/VAT on petroleum products in all states

Q&A

Thank You

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Options for a Private Company

RSP was increased to maintain a differential RSP was increased to maintain a differential of Rs 2.50 per Litre in both MS and HSD of Rs 2.50 per Litre in both MS and HSD

Market Share dropped to <2% from 15%

Company Investment of 4000 Crores and Dealer Investment between 1.5 - 2 Crores per RO : Idling

Transporter (3745 Trucks) Investment of Rs 524 Crores Idling

55,000 Jobs at Risk

Competition will die

Consumer expectation on world class Q & Q will die a premature death

Continue Marketing & Continue

Absorbing Losses

Reduce Volume Increase Prices

OR