A subject study report on refund development surcharge on petroleum products has shown that the Petroleum Ministry had violated the Economic Co-ordination Committee''s (ECC) decision and the petroleum policy 1994 to unlawfully pay refund of billions of rupees to the refineries.
The report, made available to Business Recorder, said that the ECC had taken an unambiguous decision on profit shortfall to protect the refineries from any possible loss. The decision was meant to ensure a reasonable profit/margin to the refineries and to attract investment in the sector.
The ECC decision said: "All refineries were placed on import parity formula which, in addition to price differential and their return on the paid up capital, was limited from 10 to 40 percent, including (other income)".
It did not have any ambiguity, whatsoever, on ''other income''.
The refineries used the term ''other income'' as an instrument to get refunds of billions of rupees, of course from the taxes that is public money, by showing their income less than 10 percent. Interestingly, there was no provision, or any even a passing reference, in ECC decision that in case of less than 10 percent profit the refineries can get refund from the government.
The Petroleum Ministry accepted the refineries'' misinterpretation of ''other income'' to pass on the benefit of billions of rupees to refineries unlawfully.
The report said: "Taking the advantage of ECC decision, the refineries showed their return less than 10 percent, and lodged refund claims on account of profit shortfall, which was not admissible to them".
The report indicated that the ECC had allowed the refineries ''other income'' in case they got any income from sources other than refining business.
According to the report, Ministry officials tried to make the point during a departmental committee meeting, held here on October 10 last, that refineries were guaranteed the rate of return ranging between 10 and 40 percent, and the government paid them refunds on the same basis. However, its point of view was not accepted by the committee, which said that the ECC decision did not have any provision for such refunds and the matter should be presented before the Public Accounts Committee (PAC).
Audit also raised serious concern over Petroleum Ministry''s wrong interpretation of ''other income'' provision, and strongly recommended to the PAC that it should take into account the whole matter and fix responsibility of unwarranted refunds of billions of rupees to the refineries in the name of profit shortfall.
The Audit was of the view that adequate compensation, as price differential, was available to the refineries to save them from any loss and there was no specific order to grant refunds if the profit of a refinery remained less than 10 percent during year. Furthermore, it added that the law "does not cover such guaranteed profit".
The study shows that refineries claimed profit shortfall, but ''other income'' was split up as ''refinery other income'', which was included in calculation of profit and 1-ion-refinery other income'' that was excluded therefrom, whereas whole ''other income'' was required to be included as per the decision of the Economic Coordination Committee (ECC). In this way refunds of Rs 154.562 million were claimed, and irregularly paid by the Ministry of Petroleum (MOP), in years 1999-2000 & 2000-01. Such refunds were also being paid from the year 1992-93 onwards.
This clearly shows that the refineries were getting unlawful refunds for years.