The finance minister has, however, reduced the duty on crude by five per cent to 22 per cent keeping in line with the Nirmal Singh committee recommendations which had suggested a level of 20 per cent. However, this seems to have been made up by increasing price of petrol by Re 1 per litre.

The other area of concern is the increase in excise duty on motor spirit (MS-petrol) from 20 per cent to 35 per cent. It is still not clear if this will be absorbed by the oil pool account or passed on to the consumer.

Sources say that it is more than likely that the pool will bear this burden which may not be a good thing at a time when the oil sector is gradually being opened up. TheNirmal Singh committee had suggested that the excise duty on MS be increased to 25 per cent in the second and third phase of reforms and to 165 per cent in the fourth and final phase.

The fact that this has not been done will mean that the government will have to do some furious calculations during the current financial.

Significantly, the budget did not make any announcement for free marketing by private players like Reliance Petroleum and Essar Oil. This would mean that these companies would now need to meet their requirements from strong PSU players like the Indian Oil Corporation.

The announcement of a tax holiday for refineries, commissioned after October 1998, till 2003 would see companies getting into full gear to ready their projects. These would include BPCL's two refineries in UP and MP along with HPCL's at Punjab and IOC's facility in the east coast. However, the progress of these refineries would depend on the foreign partners who at the moment are not too enthusiastic about the marginsoffered.

The biggest area of concern is that the possibilities of adulterating MS with naphtha. "It will only create further distortions in the fuel scenario," experts say. Parallel marketers of kerosene will also have a rough time with the recent levy on kerosene sold in the open market.

The Nirmal Singh committee on oil reforms had suggested that effective April 1, the duty structure on crude and other petro-products had to be revised while deregulating bitumen, naphtha, low-sulphur heavy stock (LSHS), fuel oil (FO) and light density oil (LDO).

The committee had recommended that duty levels on crude be reduced to 20 per cent from the existing 27 per cent along with marginal cuts on aviation turbine fuel (ATF), liqueifed petroleum gas (LPG) and motor spirit (MS). A five per cent duty imposition on naphtha was also suggested.

The committee had also suggested that the system of retention pricing be abolished for all refineries and that pricing of petro-products at the refinery gate level move towardsimport parity. However, refinery gate prices of controlled products like MS, ATF, HSD, SKO and LPG should be fixed at "adjusted import parity price" for exisitng refineries and tariff-adjusted import parity price for the new ones.

The refineries had sought a five per cent tariff adjustment but the ministry has now fixed it at 0.01 per cent which "by itself makes a considerable difference", sources said. "The Nirmal Singh committee report has indicated that "the existing refineries will import parity prices for crude supplies but would be allowed adjusted import parity prices for the controlled products and the differential amount equivalent to the adjustment would accrue to the oil pool account for servicing the oil bonds."

The present duty structure has come in for some criticism from the R-group report on restructuring the oil sector. It was mentioned that the current tariff rates contradict the rational tariff structure of keeping import duty on raw materials lower than that on final products.

"Sucha duty structure is somewhat perverse in the sense that it provides a negative rate of protection to refining sector PSUs while giving a high rate of effective protection to private sector petrochemical companies."

The R-group stated in its report that a clear example of this practice is naphtha. The present duty structure, it added, favours imports, discriminates against even efficient indigenous producers and is not attractive to those who wish to invest in the refinery sector.

"In view of the decanalisation of naphtha, the petrochemical industries are taking advantage of the nil import duty on naphtha and other benefits on sales tax and are importing large quantities of naphtha resulting in infructuous foreign exchange drainage, financial loss to the oil companies, and an unnecessary burden on the already congested port facilities; in other words, the social costs are considerably higher than the private costs," the R-group report said.