Petroleum Minister Murli Deora has started the groundwork for a probable rejig in the petroleum pricing policy even before the meeting of the Empowered Group of Ministers (EGoM), scheduled for Monday. On Saturday evening, Deora met Prime Minister Manmohan Singh to brief him about the EGoM meet. Deora also met Finance Minister Pranab Mukherjee on Sunday.
With the underrecovery on petrol and diesel falling by more than 50 per cent during the current fortnight and the crucial municipal elections in West Bengal behind, the proposed reform in auto fuel pricing has become more possible politically. A crucial meeting of the EGoM on Monday will deliberate on the proposal of the committee headed by former Planning Commission member Kirit Parikh to align auto fuel rates to market price.
Underrecovery on petrol and diesel has fallen to Rs 2.79 and Rs 2.9 a litre, respectively, from Rs 6.63 and Rs 6.26 per litre a month ago. The report, which was submitted in February, suggested market-linked prices for petrol and diesel.
The European crisis has tamed crude oil prices. Compared to an average of price $84.13 a barrel in April and $76.11 in May, the Indian basket of crude oil has averaged $73.07 in June so far. According to latest figures, the price of the Indian basket has dipped nearly 16 per cent to $72.45 from $85.88 on April 27. At the same time, the product-wise underrecovery has also been coming down.
The report had also suggested a phased increase in kerosene and LPG prices based on the increase in per capita urban and rural incomes. It had also proposed a reduction in kerosene sold through ration cards by 20 per cent. The OMCs currently incur an underrecovery of Rs 17.50 a litre on kerosene and Rs 262 on every LPG cylinder. Though a decision on kerosene and LPG might still be politically tricky, it is likely that the government may align petrol prices to the international rates.
Currently, the oil marketing companies (OMCs) — Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation — purchase crude oil at internationally benchmarked prices but the sale price of products like petrol, diesel, kerosene and LPG are not maintained in line with the international prices.
The EGoM may also look at tinkering excise duty so that only part of the price increase gets passed on to consumers. The excise duty on petrol and diesel is Rs 14.78 and Rs 4.74 a litre, respectively much above the revenue loss. In Delhi, the excise duty accounts for 30.84 per cent of the final petrol price and 12.44 per cent of the diesel price.
Private and public fuel retailers have been pressing for market-linked prices of petrol and diesel. “This is the best time to take a decision. Even if prices are freed, the burden passed on to consumers will be less than Rs 3 on a litre of petrol or diesel. The industry can reduce prices if crude oil dips further,” said an official with a private fuel retailer.
The report also recommended an incremental rate of taxes on higher crude oil price realisation from the nomination blocks of ONGC and Oil India Ltd (OIL) to keep the government’s subsidy share in the range of Rs 19,780-23,340 crore at various levels of crude.
Under the burden-sharing mechanism for 2009-10, the public sector upstream oil companies — ONGC, OIL and GAIL — were supposed to fully compensate the loss on petrol and diesel, estimated at Rs 14,430 crore. The loss of Rs 31,620 crore on kerosene and LPG was supposed to be made good by the government. Of this, Rs 26,000 has been compensated to the OMCs in cash. This still left the OMCs with a revenue loss of Rs 5,620 crore.
At a crude oil price of $80 a barrel, the underrecovery for the current year is estimated at Rs 98,000 crore. However, no subsidy mechanism is in place for the current year.
Source: Business Standard
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