The shift, it said, would reduce revenues of the refineries by Rs 27,600 crore per annum and substantially reduce the refining margins of the new refineries being built, thereby reducing their ability to service their capital requirements. Refinery price of petrol and diesel is fixed at trade parity that is a mix of 80 per cent import price (including freight and insurance) and 20 per cent export price. LPG and kerosene are priced fully on import parity.

The suggestion of abolishing the 2.5 per cent import duty on petrol and diesel has also been opposed by the ministry on grounds that it would reduce the protection provided to the domestic refineries vis-à-vis international refineries.

Though it has welcomed the idea of imposing a 40 per cent Special Oil Tax on revenue earned by private crude oil producers, the ministry is against a 100 per cent tax on state-run producers in similar price situation. The present system of burden sharing by state-run oil producers through price discounts to state-run refineries was a “more flexible mechanism”, it added.

The suggestion of a Metro Extra Tax of Rs 2 a litre on diesel as well as introduction of smart cards for kerosene distribution and limiting LPG delivery to six cylinders per year on each connection could be taken forward, said the ministry.