The finance ministry may opt for the Kelkar taskforce formula of a 6-7 per cent difference between import duties on crude and petroleum products in the forthcoming Budget.
The ministry, government sources said, does not see any merit in Petroleum Minister Ram Naik's suggestion that a 10 per cent difference is necessary to provide adequate protection to the domestic refining industry.
The sources said the Kelkar committee's recommendation that the duty on crude should be brought down to around 8 per cent from 10 per cent, while that on products should be reduced to 15 per cent from 20 per cent made more economic sense.
Justifying its decision, the Kelkar panel had pointed out that internationally, the duty differential was around 2 percentage points with the value addition normally around 10-15 per cent.
S Madhavan, executive director of PricewaterhouseCoopers, said there was no justification in the petroleum ministry's demand for a 10 per cent duty differential.
"What are we trying to protect -- the refineries or their margins?" he argues.
Madhavan feels if the high profits raked in by oil refining companies in the third quarter of the current financial year are any indication, it is obvious they do not need such protection.
Sanjay Kaul, director of the Indian School of Petroleum, echoes the sentiments.
"In case the refineries want to protect their margins, they should improve their efficiency. With better inventory management and improved working, the refineries can produce equally good results next year," he said.
Both Madhavan and Kaul agree that the lowering of protection would not affect the valuation of the oil companies which have been put up for divestment.
According to them, bidders cannot evaluate the companies on the basis of the level of protection enjoyed by them. Bidders would have to make their own estimates on how the tariff structure for crude and petroleum products would change in the future.
