Petroleum ministry seeks 2-year extension of tax holiday for refineries

Owing to issues beyond its control resulting in the delay in operationalising its Paradip refinery, IOC had asked the oil ministry to seek a two-year extension of the tax holiday till March 2014. The oil ministry, in turn, has written to the finance ministry requesting the same

New Delhi: The petroleum ministry has asked for a two-year extension of the tax holiday for refineries under the Income Tax Act so that state-owned Indian Oil Corporation’s (IOC) much-delayed Rs29,777 crore Paradip refinery can avail the benefit, reports PTI.

A tax holiday is currently available to units that are commissioned by 31 March 2012, under section 80IB (9) of the Income Tax Act (exemption from payment of tax on income earned from refining).

IOC’s 15 million tonnes per year (MTPA) Paradip refinery is running behind schedule because of several problems the company has faced in executing the mammoth project in Orissa, officials said.

The biggest of these were law and order problems and issues related to land acquisition, which have delayed the project commissioning to September, 2013, from the previous schedule of the first quarter of 2012.

Officials said owing to issues beyond its control, IOC had asked the oil ministry to seek a two-year extension of the tax holiday till March 2014. The oil ministry, in turn, has written to the finance ministry requesting the same.

Currently, refineries commissioned after 31 March 2012 will not be eligible for exemption from payment of income tax on revenues earned in the first seven years of operations. The seven-year income tax holiday for the refining sector ends next year.

IOC plans to sell fuel produced at the Paradip unit in the domestic market, rather than export the products as was earlier planned, due to the rise in fuel demand at home.

The refinery was originally planned to export at least 2.05 million tonnes (MT) of petrol and 124,000 tonnes of naphtha out of its yearly output of 15 MT. But double-digit growth in petrol and diesel consumption meant there would be very little left for exports.

The Paradip refinery will produce 5.97 MT of diesel, 3.4 MT of petrol, 1.45 MT of kerosene/ATF, 536,000 tonnes of LPG, 124,000 tonnes of naphtha and 335,000 tonnes of sulphur, all of which will be for sale in the domestic market.

Some of the 200,000-tonne propylene output of the plant may be exported, the company had earlier said.

IOC had previously stated that the refinery will start producing fuel by March 2012 when it will commission primary units like the crude distillation unit. Secondary units will be commissioned by July 2012 and operations stabilised by November 2012.

The Paradip refinery is being configured to process the toughest, heaviest and dirtiest crudes, which are cheaper than the cleaner and more easily processed varieties.

The refinery will have a Nelson Complexity Index of 13, the highest in the world.

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Quantum Multi Asset Fund: Should you go for it?

Is such a scheme meant for those who have no investment in equity, debt or gold? If you are totally confused about where to put your money and how much, this could be the right fund for you

Quantum mutual fund had filed offer document with the Securities and Exchange Board of India (SEBI) to launch Quantum Multi Asset Fund. This Fund of Funds (FoF) scheme will invest in equity, debt / money markets and gold schemes of Quantum.

The following schemes would be used for gaining exposure to particular asset class: Equity—Quantum long term equity fund, Quantum index fund (ETF), debt—Quantum liquid fund and for gold—Quantum gold fund (ETF). The strategy of the scheme is that when equity is not looking bullish, gold may be doing well and this FoF will perform well. Similarly, there are phases when equity would do well and not gold. So, the investor gets to ride different assets in different cycles through the same scheme. At least that is the theory behind these all-in-one schemes.

Does this theory make sense, and should you go for Quantum Multi Asset Fund? The question is where would you place a scheme that divides your money into different assets (equity, debt and gold)? It is not clear to us, how an investor will decide how much to put into a scheme like this, when he already has money invested in gold ETFs and/or equity schemes or FDs. Is such a scheme meant for those who have no investment in equity, debt or gold?

If an investor has investments in equity and not in gold, he could buy some gold ETF. So what specific role does such a scheme perform that existing products cannot? Fund companies do not offer any guide. However, if you are totally confused about where to put your money and how much, this could be the right fund for you.

 The asset allocation under the scheme, under normal circumstances, will be as follows:  Units of equity schemes—25%- 65% with a medium to high risk profile, units of debt / money market schemes—25%- 65% with a low to medium risk profile and units of gold scheme—10%-20% with a medium risk profile and money market instruments, short-term corporate debt securities, CBLO— 0%-10% with a low risk profile.  

The scheme’s performance will be benchmarked against Crisil liquid fund index (40%) + Sensex total return index (40%) + domestic price of gold (20%).

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Car sales tumble to 10-year low on poor demand, higher ownership and running cost

Further increase in petrol prices and levy of an additional duty on diesel vehicle would negatively impact passenger vehicle demand in the short term

The festive season between Dussehra and Diwali on which the automobile industry has very high hopes turned out to be lacklustre, especially for the passenger car segment. Domestic car sales in October witnessed their steepest monthly decline in the past 10 years due to challenging demand environment, higher cost of ownership and running cost caused by inflation and increased fuel prices.

Vishnu Mathur, director general of the Society of Indian Automobile Manufacturers (SIAM) said, “The reason for the fall is mainly due to the high interest rates and high fuel prices and also a big drop (in output) by Maruti Suzuki.”

Despite the steepest fall in October, many brokerages believe that the auto industry would register moderate volume growth during FY11-12 due to low penetration levels and increase in per capita incomes. "With interest rate tightening cycle nearing its end, we expect interest rate sensitive segments like passenger cars and medium and heavy commercial vehicles (M&HCVs) to get some reprieve. This, coupled with softening of commodity prices, would result in stable cost of ownership. However, further increase in petrol prices and levy of an additional duty on diesel vehicles would negatively impact passenger vehicle demand in the short-term. Also, competitive intensity is also set to remain high in all the segments,” said Motilal Oswal Securities in a research report. According to the SIAM report, during October, domestic passenger car sales fell 23.8% to 1.38 lakh units compared with 1.81 lakh units in the same month last year. This is the second steepest fall in the monthly sales of passenger cars. Earlier, in December 2000, car sales fell by nearly 40%, compared with a year ago period.

During October 2011, Maruti Suzuki, India's largest carmaker, reported a steep fall of 53.2% to 55,595 units, mainly due to disruption of production at its Manesar and Gurgaon facilities. The labour strike at these plants resulted in production loss of around 40,000 units during the month and the company expects to reach normal level of production from January next year. However, even after adjusting for production loss, Maruti Suzuki's October sales were down 20% year-on-year (y-o-y) and 16% month-on-month (m-o-m).

In the passenger car segment, Tata Motors, the country's largest vehicle maker, registered marginal 2.3% growth on a y-o-y basis but on a m-o-m basis, sales fell by 4.6%. Largely sales of Nano (up 26.2% yoy) and utility vehicles (22.8% yoy) volumes led the growth. Indigo sales, however, continued the disappointing run, declining by 24.4% y-o-y during the quarter.

Edelweiss, in a research note said, "Post the festival season sales, growth has declined for all car makers. Companies with strong diesel models or with new launches have outperformed the industry. Bookings beyond the festival season do not provide any encouraging signs either."

During the festive season the bells and whistles were missing for the passenger vehicle industry. "The high fuel prices and interest rates deterred customers. With demand strong only for diesel variants, the industry has resorted to heavy discounting for selling petrol models," said Infinity.com Financial Securities or PINC in a research report.

Following continues rate hikes by the Reserve Bank of India since March 2010, the interest rates are also reached new levels. Last month the RBI increased repo and reverse repo rates by 25 basis points (bps), its 13th hike since March last year. This has resulted in the interest rates increasing by 525 bps over the last 18 months. At present, interest rates on car loans are hovering around 12%-16%.

However, despite the RBI's tightening measures so far, the country's headline inflation was 9.72% in September, the 10th straight month where it has remained above 9%.

"With a lacklustre festive season gone by, the passenger vehicle segment would find going tough in the coming months. Although the two-wheeler industry is on a better wicket, growth would be subdued due to the high base," added PINC.

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COMMENTS

sandeep kugaji

5 years ago

It is good. Keep posting these type of things. Thanks

malq

5 years ago

Good analysis, thanks, and relevant too.

Another big reason is that more and more corporates are removing the "must own a car to claim fuel allowance" clause from their terms and conditions. In addition, the very rapid scale-up of public transport, from trains/metros to better buses to radio taxiis, in many parts of the country, contributes to the decision on now buying a new car or replacing an older one.

And finally, the price of new cars is still too high when compared to what it should be. Manufacturer margins as well as royalties being paid to parent companies abroad still leave enough space for prices to be brought down, by some accounts at least 20% and up to 30%, and the consumer knows this, is waiting for this correction.

SIAM can keep asking for sops from the Government, but the truth is that the manufacturers expect to continue working at high margins - which has to stop.

Humbly submitted/vm

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