The government’s tax earnings from the imposition of windfall tax on domestic crude oil and petroleum products is expected at around ₹43,000 crore in FY23.
According to ICRA Ratings, the total collection from downstream oil companies such as IOC, HPCL and BPCL is expected at around ₹23,000 crore in the current financial year. Similarly, the government will get around ₹20,000 crore from upstream firms such as ONGC.
Windfall tax, or special additional excise duty (SAED), is revised fortnightly and is imposed on oil companies making windfall profits due to high global crude oil prices.
Downstream companies
“Amid the elevated gross refinery margins (GRMs), the government imposed SAED on certain refinery products w.e.f. July 1, 2022, which has pared the profitability of refiners to some extent. The current duty on the export of diesel is ₹7.5 per litre and on ATF it is ₹4.5, and ICRA expects the total collection by the government from these duties to be around ₹23,000 crore in FY23 from downstream companies,” said ICRA in a report.
The ratings agency expects the profitability of downstream oil and gas players or oil marketing companies (OMC) to face pressures in the near to medium term.
ICRA V-P and Co-Group Head (Corporate Ratings), Prashant Vasisht, said retail prices of auto fuels have not been revised for an extended period of time, which has resulted in sizeable marketing losses for OMCs. The government has already announced a one-time grant of ₹22,000 crore to offset losses incurred on LPG sales.
“However, the OMCs have been demanding additional grants to set off marketing losses on auto fuels. Nevertheless, the credit profile of downstream companies is not expected to weaken substantially as credit metrics are expected to remain healthy over the medium term besides which several incumbents enjoy sovereign ownership and exceptional financial flexibility,” he added.
Upstream companies
As far as the upstream companies are concerned, ICRA said crude oil prices have remained elevated, owing to increasing global demand following recovery from Covid and low capex incurred by upstream companies globally for several years. However, they have seen some softening in the past few weeks from the highs of more than $110 per barrel in March 2022 to around $80-85 at present.
This moderation has been owing to weak demand from China and high inflation and recession in several large economies. Further, domestic gas prices have also witnessed a cumulative increase of more than 370 per cent over the last three revisions. These have translated into robust profitability and cash accruals for domestic upstream companies.
ICRA SVP and Group Head (Corporate Ratings), Sabyasachi Majumdar, said the government has imposed a windfall tax on crude oil and certain refinery products from July 1, 2022.
“The current duty on crude oil is ₹2,100 per tonne and ICRA expects the total collection by the government from this duty to be around ₹20,000 crore for FY23 from upstream companies,” he added.
Despite the imposition of the SAED, the net realisations of upstream companies on crude oil sales remain healthy at above $75 per barrel at which levels capex plans would not be impacted. Elevated crude and domestic gas prices translate into healthy realisations and cash flows for upstream producers, Majumdar noted.