India’s Marine Fuel Tax Cuts Set To Boost Port Traffic

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Mfame Editor
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The Indian government’s decision to eliminate excise duties on high-flash high-speed diesel (HFHSD) and marine gas oil (MGO) supplied to foreign ships is anticipated to increase port traffic significantly. Effective December 3, 2024, the policy change reinstates the previous tax-free supply regime, similar to the regulations of pre-July 2022.

Key Highlights

  1. Policy Update:
    • HFHSD and MGO supplied to foreign vessels are now eligible for a duty rebate or duty-free export under Rule 18 and Rule 19 of the excise law.
    • This is expected to restore India’s competitiveness in the bunkering market.
  2. Market Context:
    • The duty, introduced on July 1, 2022, was levied at ₹15.80/litre ($230/mt) during elevated crude prices exceeding $100/b.
    • With crude oil prices now stabilizing between $70-$75/b, the tax removal aligns with the global trend toward competitive energy pricing.
  3. Competitive Advantage:
    • Delivered low sulfur MGO prices have dropped to $770/mt (as of Dec. 5), marking a significant reduction of $260/mt compared to earlier prices inclusive of duty.
    • This positions Indian ports as a cost-effective refuelling hub for foreign vessels.

Industry Response

  • Hindustan Petroleum Corporation Ltd. (HPCL):
    HPCL plans to supply a range of MGO grades, including biofuel blends like B20, leveraging its expanded capacity at the Vizag refinery.
  • Bunker Suppliers:
    Suppliers, such as those based in Kochi, view the policy change as a game-changer, enabling Indian ports to compete more effectively in the international bunkering market.
  • Documentation Challenges:
    While the duty removal is welcomed, it requires extensive documentation for compliance, mirroring procedures from before 2022.

Broader Implications

  1. Port Traffic Growth:
    Foreign vessels, previously deterred by high taxation, are expected to return, boosting India’s port traffic and bunker fuel sales.
  2. Competitive Pricing:
    India’s gas oil surplus and the removal of duties provide a foundation for more attractive pricing, improving its position against rival ports in the region.
  3. Strategic Advantage for Refiners:
    Private refiners, capitalizing on surplus production, can further enhance profitability and market presence.

The excise duty removal marks a significant step in strengthening India’s bunkering services and enhancing its appeal as a regional maritime hub. The move reflects a balance between regulatory adjustments and market competitiveness, aiming to leverage India’s position in the global shipping economy.

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Source: S&P Global