Profits of refineries to fall at least 13%
Analysts expect duty revision to 5% from 7.5%. Govt will be forgoing Rs8b a month if deemed duty is abolished.
KARACHI:
Earnings of Attock Refinery and National Refinery will fall by 13 to 17 per cent if deemed duty is reduced from 7.5 per cent to five per cent, according to Topline Securities.
Deemed duty is likely to go down to five per cent rather than complete abolition, said Topline Securities analyst Nauman Khan. This development will be equally negative for the government as it collects 7.5 per cent deemed duty on diesel at import stage. The government will be letting go of Rs8 billion a month if deemed duty is abolished, added Khan.
The government lets refineries charge an extra 7.5 per cent duty in order to sell locally-produced diesel at the same price as the sale of imported diesel. This was imposed to protect refineries against volatility in international oil prices.
Any reduction in deemed duty will be negative for the refinery sector, a one-time negative for oil marketing companies while exploration and production companies will remain unhurt.
Worst case scenario
In case the deemed duty becomes zero, it will reduce Attock Refinery and National Refinery fuel earnings by 80 to 88 per cent, says Topline Securities in a research note.
Reducing deemed duty to zero from the existing 7.5 per cent will slash their fiscal 2012 earnings by 45 to 70 per cent, which will push their core fuel refining earnings into losses.
Attock Refinery to be the hardest hit
Attock Refinery will be the hardest hit while the impact on National Refinery will be eased by its lube business, which contributes more than 60 per cent to the company’s earnings.
In this case, Attock Refinery’s earnings per share for fiscal 2012 will drop to Rs8 from Rs26 whereas National Refinery’s earnings per share will come down to Rs30 from Rs54.
Negative for government as well
The benefit of 7.5 per cent deemed duty also accrues to the government since more than 70 per cent of the local diesel demand is met through imports and the government collects 7.5 per cent deemed duty or Rs4.3 per litre on diesel at the import stage. If this duty is abolished, apart from corporate taxes from the refinery sector, government revenues will fall by Rs8 billion a month. This is in addition to the loss of Rs8 billion which the government is already incurring by forgoing the petroleum levy on oil prices.
Published in The Express Tribune, February 4th, 2011.
Earnings of Attock Refinery and National Refinery will fall by 13 to 17 per cent if deemed duty is reduced from 7.5 per cent to five per cent, according to Topline Securities.
Deemed duty is likely to go down to five per cent rather than complete abolition, said Topline Securities analyst Nauman Khan. This development will be equally negative for the government as it collects 7.5 per cent deemed duty on diesel at import stage. The government will be letting go of Rs8 billion a month if deemed duty is abolished, added Khan.
The government lets refineries charge an extra 7.5 per cent duty in order to sell locally-produced diesel at the same price as the sale of imported diesel. This was imposed to protect refineries against volatility in international oil prices.
Any reduction in deemed duty will be negative for the refinery sector, a one-time negative for oil marketing companies while exploration and production companies will remain unhurt.
Worst case scenario
In case the deemed duty becomes zero, it will reduce Attock Refinery and National Refinery fuel earnings by 80 to 88 per cent, says Topline Securities in a research note.
Reducing deemed duty to zero from the existing 7.5 per cent will slash their fiscal 2012 earnings by 45 to 70 per cent, which will push their core fuel refining earnings into losses.
Attock Refinery to be the hardest hit
Attock Refinery will be the hardest hit while the impact on National Refinery will be eased by its lube business, which contributes more than 60 per cent to the company’s earnings.
In this case, Attock Refinery’s earnings per share for fiscal 2012 will drop to Rs8 from Rs26 whereas National Refinery’s earnings per share will come down to Rs30 from Rs54.
Negative for government as well
The benefit of 7.5 per cent deemed duty also accrues to the government since more than 70 per cent of the local diesel demand is met through imports and the government collects 7.5 per cent deemed duty or Rs4.3 per litre on diesel at the import stage. If this duty is abolished, apart from corporate taxes from the refinery sector, government revenues will fall by Rs8 billion a month. This is in addition to the loss of Rs8 billion which the government is already incurring by forgoing the petroleum levy on oil prices.
Published in The Express Tribune, February 4th, 2011.