Govt imposes value addition norms on petroleum exports

The commerce ministry has imposed value addition norms on export of petroleum and petrochemical products.

Explaining this, officials in the ministry have said that the exporters of petroleum products will now have to ensure value addition of at least eight per cent in the total value of exports for availing of various export promotion benefits under the advance authorisation scheme, the umbrella scheme that specifies the duty and export drawback benefits given to the exporters while importing goods meant for exports.

“This is done to ensure that the sector earns foreign exchange while availing of duty benefits and other export promotion benefits,” said an official. Domestic users of petrochemical products are also of the view that the measure is to check exports since domestic demand for such petroleum and petrochemicals products are quite high. The domestic industry is increasingly being fed on imports, they added.

“If they import a product at Rs 100, then they have to earn by selling it at least at Rs 108 and show this earned foreign exchange as a precondition for availing of the duty benefits. The minimum value addition is linked to the input cost and is calculated as a difference of exported and imported value. In effect, the imported goods must be suitably value-added so that they fetch a high value to the extent of eight per cent more than the input cost,” said an official.

Various products which will fall under the ambit are naptha, motor spirits, gasoline solvents, reformate, hexane, tert-amyl methyl ether, middle distillates like aviation turbine fuel, gas oil, furnace oil, fuel oil, asphalt, petroleum bitumen, raw petroleum coke, calcined petroleum coke, slack wax, paraffiin wax, sulphur and microcrystalline wax. Various solvents include LABFS, AROMEX, JBO, LDO and VGO.

However, it is clarified that export of lubricating oils and petrochemical products like benzene, toluene and industrial solvent like methyl tert- butyl ether are exempt from such norms.

Petrochemical exporting companies say this will definitely raise the cost of exports since the duty benefits under export promotion will get nullified to the extent of the value addition. Officials in a state-run company, however, said that this clarification was also a positive development for the sector because as against a minimum value addition of 15 per cent for all other sectors, petroleum and petrochemicals exports would have to just bear a mandatory minimum value addition of eight per cent.