Windfall tax: $12 a barrel hit margins for Reliance
New Delhi:
The unexpected tax imposed by the government on domestic crude oil production and fuel exports will hit ONGC’s earnings heavily, while the refining margin for Reliance Industries Ltd will come down by up to $12 a barrel.
The brokerage said the government would get additional revenue of Rs 1.3 lakh crore from the new levy.
In a surprise move, the government on July 1 raised import duties (up to 5 per cent) on gold, on petrol and ATF (Rs 6 per liter; $12 per barrel) and diesel (Rs 13 per litre; $26 per barrel). Export duty added. ) and imposed an unexpected tax on domestic crude oil production (Rs 23,250 per tonne; $40/bbl).
This follows the duty imposed earlier on steel (15 per cent) and iron ore (up 20-45 per cent).
While the export tax will be applicable to Reliance Industries (RIL) refineries for export only, the restriction on product exports in which at least 30-50 per cent is first supplied domestically, will not be applicable to SEZ units.
HSBC Global Research said in a note that in May 2022, the government announced an excise duty cut of Rs 8 per liter on petrol and Rs 6 per liter on diesel, which is expected to cut its revenue by Rs 1 lakh crore. Is. ,
“The additional excise duty announced with effect from July 1, 2022 is intended to fill this revenue gap. We estimate that these taxes can generate Rs 1.2 lakh crore in government revenue and discourage exports of products that are not needed in the domestic market. being carried away.”
Unexpected tax on crude oil production could generate revenue of Rs 65,600 crore and tax on export products could be Rs 52,700 crore if they are continued for the whole year.
Kotak Institutional Equities said the taxes would result in additional tax revenue of Rs 1.3 lakh crore on an annual basis and the remaining Rs 1 lakh crore for FY2023 assuming that the government retains the taxes for the entire year.
UBS estimates that the government can raise Rs 1.38 lakh crore annually from additional taxes.
“Based on the diesel and gasoline export volumes in the last one year and FY23 estimates, we estimate an additional revenue of Rs 68,000 crore on the three transport fuels. Similarly, unforeseen tax on crude will generate Rs 70,000 crore in additional revenue. Can raise Rs. Nomura said the unexpected tax could hit RIL’s GRM by $12 per barrel (Rs 47,000 crore annually).
Goldman Sachs said it saw limited earnings risk for RIL (despite a broader outlook of $1.5-12.7 for GRM from gross refining margin or new taxes) as the spot implied GRM run rate exceeds $27 a barrel.
HSBC said while the new tax would reduce ONGC’s earnings by Rs 30 per share, its impact on RIL would be Rs 36 per share.
HSBC said, “We believe that the loss on its domestic marketing margins is still higher than export tax, and thus, we are confident that RIL will continue to export significant volumes.”
JP Morgan said tariffs on steel/iron ore have helped lower domestic prices and curb inflation, but higher taxes on gold should reduce imports and marginally help the external balance.
“Nevertheless, the measures on Friday (July 1) will work perfectly for the government to increase revenue.”
Tariffs on crude should raise an additional $3-4 billion (net of less royalties, income taxes and dividends), while gold duties could raise $1.5-2 billion annually.
Export taxes on diesel/petrol could raise close to $9 billion in gross per year; Adding up the revenue for the current financial year would be 75 per cent of these numbers.
Citi said in a note, “The intention of the government appears to be to maximize revenue from upstream producers to offset the upside from higher oil prices, as well as to discourage refined product exports by private refiners, so that domestic Fuel availability should not be compromised.”
The $40 per barrel windfall tax “is a material negative for ONGC, particularly where earnings are likely to be severely impacted,” it said.
On top of the new levy, ONGC will continue to pay 20 per cent (one-fifth of the oil price) as OIDB cess and another 10-20 per cent royalty. The net realization for ONGC would be around 40 per cent of the oil price.
Citi said the gross refining margin (GRM) impact for RIL, assuming that two-thirds of its diesel, petrol and ATF are being exported, could be $9-10 a barrel, giving the firm currently $6 billion. 25 per barrel should earn GRM.
“The earnings impact for RIL is likely to be less material given the offset from the marking-to-market for existing GRM strengths, which will deter earnings upgrades rather than drive major downgrades.”
Kotak said he “does not see much merit in the government’s decision to levy export duty on exports from RIL’s SEZ refinery. The government has taken steps to increase exports of diesel and gasoline and enforce low availability of such products for the domestic market.” Export tax. However, the SEZ refinery of RIL was set up for export, and its products were not intended for sale in the domestic market”.
It said the demand-supply analysis of petroleum products shows that there is sufficient availability of diesel and petrol for the domestic market, even excluding volumes from RIL’s SEZ refinery.
Haitong said India’s total diesel demand is 80-83 million tonnes, while the total PSU diesel supply is 65-68 million tonnes.
“Hence, the rest can be met by private players like RIL and Naira Energy. Similarly, the total petrol consumption in India is 30-31 million tonnes while the supply of PSUs is 21-22 million tonnes.
Therefore, one-third of India’s consumption can be met through private players.” According to CLSA, RIL’s GRMs could be affected by $5-6 per barrel due to the new tax.
It said the new taxes would give the government an additional Rs 1.1 lakh crore ($14 billion) in annual revenue, reducing the revenue loss of Rs 97,000 crore from the excise duty cut nearly six weeks ago.
Credit Suisse said the impact on RIL from the cess on export of petroleum products is around $7-8 per barrel, which translates to an annual impact of $3.5-4.0 billion on EBITDA.