The Hindu Business Line : Govt moves to speed up APM regime phase-out

THE Government has decided to hasten the process of seeking Cabinet approval for the dismantling of the Administered Pricing Mechanism regime in the petroleum sector on March 31.

The Cabinet Secretariat has sent a letter to the Petroleum Ministry scheduling a Cabinet meeting on February 5 to consider the proposal.

The meeting has been slated within a week of the Cabinet note having been circulated to the administrative Ministries, including the Finance Ministry.

Further, the Secretariat letter comes well before the comments of these Ministries have been obtained, which is viewed as a departure from established procedures, according to officials.

Besides the areas of differences between the Petroleum and Finance Ministries, there are several nuts-and-bolts issues with regard to dismantling of the APM where the Finance Ministry is supposed to work out mechanisms.

The Petroleum and Finance Ministries are divided over the taxation regime in the post-APM period.

While the Finance Ministry is in favour of an ad valorem regime, the Petroleum Ministry has pitched for a fixed rate of excise duties.

The Petroleum Ministry has argued that the refinery margins would turn negative in comparison to imports at crude prices above $25 per barrel.

This is because while the excise duty is levied on the sum of the ex-refinery price and transportation charges, the countervailing duty is levied on the import price alone.

For the post-APM phase, the Finance Ministry was supposed to formulate a mechanism to compensate refiners to the extent of Rs 2,000 crore annually on account of irrecoverable taxes such as turnover tax and entry tax on crude levied by the States.

Currently, a State-specific surcharge is levied to compensate such under recoveries.

The problem is aggravated on account of the delay in the implementation of value added tax (VAT).

The Petroleum Ministry has made out a case for a common pricing of petrol and diesel in coastal and up-country locations since the variation is up to Rs 2 per litre on account of freight costs. The Finance Ministry is, however, not in favour of equalisation of prices.

While it has stated that the oil companies should declare one maximum retail price on an all-India level, the Petroleum Ministry has argued on the impracticality of this proposal on account of the varying sales tax and transportation rates across States.

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