Kirit Parikh panel may pitch for freeing fuel price

Refiners' take

Private sector for subsidy through specified budgetary provision.

Changes in excise/customs duty or sales tax be passed on to the customer fully.

The Kirit Parikh panel, set up by the Centre to draft a fuel pricing policy, will press for deregulation of petrol and diesel. The report is to be submitted by this month-end.

Top industry sources told Business Line a consensus seems to have emerged that the committee would follow a line adopted by similar expert groups that advocated market-determined pricing for the two auto fuels.

Equally, going by past reactions of different governments to these proposals, it is likely that anything similar this time would end up in the archives.

The private sector, comprising Reliance, Essar and Shell, believes that any subsidy on these auto fuels is best allocated through a specified budgetary provision. This would ensure them a safety net on the lines of public sector refiners.

The refining companies also feel that the ex-storage price of these products be increased (or decreased) by 64 paise a litre for every Rs 100/barrel (increase or decrease) in international oil price. They reiterate that changes in excise/customs duty or sales tax be passed on to the customer fully though this may inflate the retail selling price.

The private players have sought a reduction in the entry barrier of Rs 2,000 crore to have a competitive market of Herfindahl-Hirschman Index.

Also called HHI, this is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. Increases in the index generally indicate a decrease in competition and an increase of market power, whereas decreases indicate the opposite.

As for losses on cooking gas and kerosene (to be squared up by the Centre through issue of oil bonds), the private players have suggested that these can be made good by floating levies on non-NELP crude. They argue that the net revenues of non-NELP producers keep increasing marginally with an increase in crude prices, even if under-recoveries of both products are compensated by non-NELP crude. Further, an increase in selling price and Government subsidy will boost the net revenues for non-NELP crude oil producers, they add.

In fact, Oil and Natural Gas Corporation has suggested to the Parikh panel that a special oil tax (SOT) or windfall tax be levied on crude oil producers if their produce fetches any price over $60 a barrel. It has also recommended that 20 per cent of the incremental price over $60 a barrel be taken as tax to subsidise petrol, diesel, LPG and kerosene while 40 per cent of anything beyond $70 can be taken as windfall tax. This could be 60 per cent for anything over $80 and 80 per cent on $90 plus a barrel.

PSUS suffer

As for the public sector refiners, the whole exercise is turning out to be farcical. In the process, they have suffered in selling fuels at unrealistic subsidies and waiting for eternity for a compensation package from the Centre. Over the last few years, ONGC, Oil India and GAIL (India), have made good the losses incurred by IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation on sale of petrol and diesel. A system of market-determined pricing for these two fuels would be the best piece of news to these companies.

Source: Business Line

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