ONGC, Oil India, MRPL Shares Jump up to 5% After Govt Slashes Windfall Tax

ONGC, Oil India, MRPL, Chennai Petro: Energy stocks surged up to 5 per cent on the BSE intraday in morning trade on Friday. Shares of Oil and Natural Gas Corporation (ONGC) (Rs 150.50) and Oil India (Rs 218) were up 2 per cent to hit over a five-month high in Friday’s intra-day trade after cess on domestically produced crude oil was reduced from Rs 4,900 per tonne to Rs 1,700 per tonne. These stocks traded at their highest level since July 1, 2022.

Individually, MRPL shares gained the most by over 5 per cent to Rs 61.2 per share, followed by Chennai Petro shares up over 4 per cent to Rs 221.95 apiece.

The rise in the energy stocks (upstream companies) could mainly be attributed to the government’s move to cut the windfall profit tax on domestically produced crude oil and reduce the levy on diesel.

In a notification, the finance ministry said the windfall tax on locally produced crude oil has been cut to Rs 1,700 per tonne from Rs 4,900 per tonne. The special additional excise duty on petrol continues to remain unchaged at ‘Nil’, while windfall tax on high-speed diesel for exports has been reduced to Rs 5 per litre from Rs 8 earlier. This includes an additional cess of Rs 1.5 per litre. Levy on aviation fuel ATF is been cut to Rs 1.5 per litre.

Changes to the windfall tax will be effective from 17 December 2022, the order said. The Centre has been revising the windfall tax almost every two weeks since it was introduced on July 1. At that time, the Centre levied duties of Rs 6 per litre ($12 per barrel) each on petrol and ATF and Rs 13 a litre ($26 a barrel) on diesel. A Rs 23,250 per tonne ($40 per barrel) windfall profit tax on domestic crude production was also levied.

After the latest revision, the tax on oil produced from domestic fields has been lowered by about 65 per cent.

What is Windfall Tax?

While windfall profit tax is calculated by taking away any price that producers are getting above a threshold, the levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments. These margins are primarily a difference of international oil price realised and the cost. The rates of the levies are being changed depending on crude prices and the refining spread. From $108 per barrel in March this year, crude oil prices have come down to around $82 per barrel. Oil prices slid about 2% on Thursday as traders worried about the fuel demand outlook due to a stronger dollar and further interest rate hikes by global central banks. After rising for three straight days, Brent futures fell or 1.8%, to settle at $81.21 a barrel, while US West Texas Intermediate (WTI) crude fell 1.5%, to settle at $76.11.

Indian government first imposed windfall profit taxes on 1 July, joining a growing number of nations that tax super normal profits of energy companies. At that time, export duties of Rs 6 per litre each were levied on petrol and aviation turbine fuel and Rs 13 a litre on diesel. A Rs 23,250 per tonne windfall profit tax on domestic crude production was also levied. The duties were partially adjusted in the following fortnightly review on 20 July, 2 Aug, 19 Aug, 1 Sep, 16 Sep, 1 Oct, 15 Oct, 1 Nov, 15 Nov, 1 Dec, and 15 Dec 2022.

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