People's Democracy

If US Can Consider 'Windfall Tax',  Why Not Indian Govt?

CITU Questions PM

CITU president M K Pandhe has written the following letter to the prime minister Dr Manmohan Singh regarding global oil prices

Dear prime minister,

Kindly refer to my letter dated 03.05.2008 urging you to impose �windfall tax� on the super profits earned by the private sector petroleum industry, engaged both in exploration and refining business.

In this connection I invite your kind attention to the recent hearing of US Senate Committee on Judiciary held on 21.05.2008 on �Exploring the Skyrocketing Price of Oil� wherein executives of five largest oil companies viz. BP America Inc., Shell Oil Company, Chevron Corporation, Conoco Phillips Company and Exxon Mobil Corporation were questioned. In the closing remarks Senator Patrick J Leahy, chairman of the Committee stated:

�Of course, the bottom line is very simple: People we represent are hurting. Your companies, the foreign oil interests, are profiting. And we need to get this somehow into balance. We look at the past profits of oil companies and what they're making on previously discovered oil; oil that was very profitable for them at $55 to $65 a barrel is obviously making them windfall profits at $130 a barrel.�

In para 3 of my aforesaid letter, I had exactly referred to such super profit in Indian scenario stating:

�With crude oil prices now exceeding $100/bbl, it is necessary that windfall gains be recovered from private oil and gas producing companies like M/s Cairns, Reliance etc who are contractors extracting oil and gas in India through Production Sharing Contract (PSC). When these contractors participated in the famed NELP policy, none of them could have envisaged crude oil prices beyond $30/ bbl. It would be a failure on government�s part to allow such upstream contractors additional gain of $70/bbl - $80/ bbl in the name of import parity without any link with actual production cost.�

You will agree that if US Senate Committee can call for a control on the super profit of private oil giants in the land of so-called free market economy, there is no reason why India with millions of people under poverty line cannot curb such super profits earned by foreign and domestic private oil companies on Indian soil.

As for windfall tax on standalone private refineries, as suggested by me because of high refining cost of $16 per barrel approx by M/s Reliance as compared to $6 to $8 per barrel a couple of years back, this is what US Senator Richard J Durbin said on the floor of US Senate on 29.04.2008, castigating the global trend of high refining cost:

�Many people say: well, I suppose, because it has now reached $120 a barrel -- as it did last week -- that explains the gasoline prices I am paying, the diesel prices, and jet fuel prices. In fact, it does not. It is an oversimplification to say that is the reason. Because between the crude oil and the product you buy is a refinery, an oil company that takes the crude and converts it into the product we purchase. The difference in cost between the original barrel of crude oil and the ultimate product has changed dramatically. Not that long ago, the difference in cost was $1 or $2 a gallon, in terms of the refining process. Now it is up over $40 a gallon. So the refining process - between the crude oil and what you bought at the gas station - has risen dramatically in cost.�

As a matter of fact, I understand Democrats in US Senate recently announced an energy package that would tax windfall profit of the five oil companies, who were called by the aforesaid Senate Committee.

The above reinforces our demand that the taxation policy of the government has to be revisited instead of present focus on price rise of petroleum products. Bringing down the present import duty on crude oil from 5 per cent to nil, from 7.5 to 2.5 per cent on petrol and diesel coupled with reduction in excise duty and imposition of windfall tax are the genuine options before the government. I request you to consider these options and advise the finance ministry to take these steps along with formation of a Price Stabilisation Fund with cess charged @ Rs 2500 per ton on crude oil produced by the public sector oil companies like ONGC and Oil India Limited.