What's Happening?
Last week, the central government imposed export duties on petrol, diesel and jet fuel and a windfall tax on oil producers. The government imposed a duty of Rs 6 per litre on the export of petrol and jet fuel and Rs 13 per litre on diesel exports.
The refiners must sell at least 30% of the diesel and 50% of the petrol they export in the domestic market.
Why This Announcement?
These export duties will stabilise the domestic prices of these fuels and ensure adequate availability of petroleum products in the country.
Finance Minister Nirmala Sitharaman said that phenomenal profits on exports at the expense of domestic availability forced the government to take this decision. Also, the duties will be reviewed every fortnight in light of international prices.
What Does it Mean for Oil Producers and Refiners?
This move will impact companies such as ONGC, Oil India, Reliance Industries Limited, Chennai Petroleum Corporation Limited, and Mangalore Refinery and Petrochemicals Limited.
The day following the announcement, the share prices of these companies went downhill in the following range:
(Graph)
Former ONGC Chairman Subhash Kumar said, "If companies don't receive help during downturns, they also expect to retain upsides when the market cycle turns somewhat favourable."
These export duties can potentially reduce the earnings of oil producers and refiners to 5-15% for FY23! The imposition of a windfall tax would decrease the Gross Refining Margins (GRM) to $11-13 per barrel from $22-23 per barrel.
How Will it Impact Investors?
Shares of companies such as Chennai Petrochem and Mangalore Refinery saw their revenues and net profits triple in the March quarter due to increased refining margins, reflected in their climbing stock prices.
As a result, investors enjoyed the party. The government's announcement has undoubtedly dented the party!
