Kirit Parikh Panel: Part of LPG and SKO subsidy can be financed through burden sharing by ONGC and OIL

Feb 3: The Committee is of the view that under recoveries will come down sharply if its recommendations are accepted. But to mop up the under -recoveries that will still remain in the sale LPG and SKO, the following steps have been suggested:

•  The  first step to contain under-recoveries/subsidies on PDS kerosene and domestic   LPG is to reduce all-India allocation of PDS kerosene and increase prices of both PDS kerosene and domestic LPG
•  When prices rise in the international market, and domestic retail prices are not raised, the under-recovery gap will widen. However, with the rise in prices, the estimated incremental income of ONGC / OIL will also rise.
• Therefore, the next step to finance under-recoveries of OMCs would be by way of mopping up part of the incremental income of ONGC and Oil India by way of price discounts extended to the OMCs. The petroleum ministry has been administering this method. It provides flexibility to the government in balancing the needs of ONGC and Oil India and the obligation to finance the under-recoveries of OMCs. Therefore, the present arrangement may be continued and incremental incomes of ONGC and Oil India can be mopped up bythe petroleum ministry in a calibrated manner. In this manner, a sustainable pattern of financing under-recoveries on domestic LPG and PDS kerosene can be put in place by:
• Determining the under-recovery on domestic LPG and PDS kerosene based on the import parity principle;
• Effecting suitable price revisions from time to time;
• Mopping up a portion of the incremental revenue accruing to ONGC/OIL from production in those blocks, which were given by the government on nomination basis (the mopping up procedures have been calibrated in a table)
• Providing cash subsidy from the Budget to meet the remaining gap.

Source: www.indianpetro.com

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