The windfall taxes imposed by the federal government on home crude oil manufacturing and gas exports will hit ONGC’s earnings severely whereas shaving off as much as USD 12 per barrel in refining margins for Reliance Industries Ltd. The new levies will give the federal government as much as Rs 1.3 lakh crore extra income, brokerages mentioned.
In a shock transfer, the federal government on July 1 elevated import duties on gold (by 5 per cent), added export duties on petrol and ATF (Rs 6/litre; USD 12 per barrel) and diesel (Rs 13/liter; USD 26/bbl) and slapped a windfall tax on home crude manufacturing (Rs 23,250 per tonne; USD 40/bbl). This follows earlier duties imposed on metal (15 per cent) and iron ore (up 20-45 per cent).
While the export tax will likely be relevant on only-for-exports refinery of Reliance Industries (RIL), the restriction on product exports whereby not less than 30-50 per cent is first equipped domestically won’t apply to SEZ models. HSBC Global Research in a be aware mentioned in May 2022, the federal government introduced a minimize within the excise obligation of Rs 8 per litre on petrol and Rs 6 a litre on diesel, which is estimated to have lowered its revenues by Rs 1 lakh crore.
“The additional excise duty just announced and effective from July 1, 2022 aims to fill this revenue gap. We estimate these taxes could generate Rs 1.2 lakh crore in government revenue and could also discourage the export of products which are being diverted away from the domestic market.” The windfall tax on crude manufacturing may generate income of Rs 65,600 crore and tax on export merchandise one other Rs 52,700 crore in the event that they had been to be continued for the total yr.
Kotak Institutional Equities mentioned the taxes will end in extra tax revenues of Rs 1.3 lakh crore on an annualized foundation and Rs 1 lakh crore for the remainder of FY2023 assuming the federal government retains the taxes for all the yr. UBS estimated that the federal government can elevate Rs 1.38 lakh crore yearly from extra taxes.
“Based on diesel and gasoline export volumes in past year and estimate for FY23, we estimate additional revenues of Rs 68,000 crore on three transportation fuels. Similarly, windfall taxes on crude can raise Rs 70,000 crore in additional revenues.” Nomura mentioned the windfall taxes may probably influence RIL’s GRM by USD 12 per barrel (Rs 47,000 crore on an annualised foundation).
Goldman Sachs mentioned it noticed restricted earnings danger for RIL (regardless of broad eventualities of USD 1.5-12.7 danger to gross refining margins or GRMs from new taxes) because the spot implied GRM run fee is over USD 27 per barrel. HSBC mentioned whereas the brand new tax will decrease ONGC earnings by Rs 30 per share, its influence on RIL can be Rs 36 a share.
“We continue to believe the loss on its domestic marketing margin is still greater than the export tax, and thus, we believe RIL is likely to continue to export significant amounts,” HSBC mentioned.
JP Morgan mentioned whereas the duties on metal/iron ore helped scale back home costs and curb inflation, a better tax on gold ought to lower imports and assist the exterior steadiness marginally. “Yet, Friday’s (July 1) measures will serve squarely to raise revenue for the government.” Duties on crude oil ought to elevate a further USD 3-4 billion (internet of decrease royalties, revenue taxes and dividends) whereas the gold obligation can elevate USD 1.5-2 billion annualized. Export taxes on diesel/petrol can elevate near USD 9 billion gross every year, it mentioned including the income for present fiscal will likely be 75 per cent of those numbers.
“The government intent appears to be to maximise revenues from upstream producers by capping their upside from higher oil prices as well as disincentivising refined product exports by private refiners to ensure domestic fuel availability isn’t compromised,” Citi mentioned in a be aware.
The USD 40 per barrel windfall tax is “a material negative for ONGC in particular where earnings are likely to be severely impacted,” it mentioned.
On the highest of the brand new levy, ONGC will proceed to pay oil 20 per cent (a fifth of the oil value) as OIDB cess and one other 10-20 per cent royalty. The internet realisation for ONGC will likely be round 40 per cent of the oil value. The gross refining margin (GRM) influence for RIL assuming two-thirds of its diesel, petrol and ATF had been being exported, might be USD 9-10 per barrel, Citi mentioned including the agency should be presently incomes USD 25 per barrel GRM.
“The earnings impact for RIL is likely to be less material given offsets from marking-to-market for current GRM strength, which would likely preclude earnings upgrades rather than drive major downgrades.” Kotak mentioned it doesn’t “see much merit in the government’s decision to impose export duties on exports from RIL’s SEZ refinery. The government has cited increased exports of diesel and gasoline and lower availability of such products for the domestic market as a key reason to impose the exports tax. However, RIL’s SEZ refinery was set up for exports and its products were not intended for sale in the domestic market”.
It mentioned demand-supply evaluation of petroleum merchandise reveals that there’s sufficient availability of diesel and petrol for the home market even excluding volumes from RIL’s SEZ refinery. Haitong mentioned India’s whole diesel demand is 80-83 million tonnes whereas the entire PSU diesel provide is 65-68 million tonnes.
“Therefore, the rest can be met by private players like RIL and Nayara Energy. Similarly, total consumption of petrol in India stands at 30-31 million tonnes while PSUs supply is 21-22 million tonnes. Therefore, one-third of India’s consumption can be fulfilled through private players.” According to CLSA, RIL’s GRMs could also be hit by USD 5-6 per barrel as a result of new tax.
It mentioned the brand new taxes would give the federal government additional annual income of Rs 1.1 lakh crore ($14 billion), negating the Rs 97,000 crore income loss from the excise obligation minimize achieved about six weeks in the past. Credit Suisse mentioned the influence on RIL from cess on the export of petroleum merchandise is about USD 7-8 per barrel, translating to an annualized influence of USD 3.5-4.0 billion on EBITDA
Source: www.financialexpress.com”