Mumbai: Shares of state-run oil exploration firms Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd slumped nearly 7% on Thursday after Press Trust of India reported that the government may levy a windfall tax on oil producers to soften fuel prices.
ONGC shares closed 4.50% lower at Rs167.65 on BSE after hitting an intraday low of Rs155.45, down 11.4%. Oil India shares ended 6.83% down at Rs214.80 after touching an intraday lowe of Rs204.65 a share, down 11.2%.
The tax, which may come in form of a cess, will kick in the moment oil prices cross $70 per barrel, reported PTI, citing people familiar to the development. Under the scheme, oil producers, who get paid international rates for the oil they produce from domestic fields, would have to part with any revenue they earn from prices crossing $70 per barrel mark.
The revenues so collected would be used to pay fuel retailers so that they absorb spikes beyond the threshold levels, added the report. This may be accompanied by a minor tinkering with excise duty rates to give immediate relief to consumers. States too would be asked to cut sales tax or VAT to show a visible impact on retail prices, noted the PTI report.
Last week, Brent crude topped $80 a barrel for the first time since 2014. The spike in oil prices is due to a combination of factors such as President Donald Trump pulling the US out of the 2015 nuclear accord with Iran, Opec and Russia cutting supplies, falling production in Venezuela and geopolitical tensions.
Earlier Moody’s Investor Service had said that the ONGC and Oil India face increasing risk that the government will once again require them to share in the country’s fuel-subsidy burden as oil prices rise.
“Because of the government’s widening fiscal deficit, ONGC and OIL could be asked to bear part of the Indian government’s fuel subsidy for oil, if prices stay above $60 per barrel for the fiscal year ending March 2019,” Moody’s analyst Vikas Halan said in a 22 May report.
The report also noted that the two companies have not contributed to fuel subsidies since June 2015, but have in previous years paid for over 40% of the country’s annual subsidy bill.