Financial Daily from THE HINDU group of publications
Friday, Feb 15, 2002
Industry & Economy
Govt may fix price cap on petro products post-APM
MUMBAI, Feb. 14
PRICES of petroleum products may not be fully deregulated even after the administered price mechanism (APM) is dismantled after April 2002.
According to recommendations of the expert committee set up to study deregulation of the marketing of controlled products, the Union Government may fix a `Ceiling Selling Price' on retail petro products including petrol, diesel, kerosene and liquefied petroleum gas (LPG).
"Any rapid distortions in the availability and prices (of these retail products) are likely to generate not only resistance to such policy initiatives but also social tensions. Therefore, it was felt that it would be prudent to fix the ceiling selling prices of petroleum products of mass consumption,'' the committee report says.
The proposed price will include dealers' commissions, marketing margins, etc. And while oil companies - both public and private - will be free to fix dealer commissions, these will be fixed within the ceiling prices.
The admissibility and process of working out the ceiling prices as also, whether these prices will be applicable throughout the country or only in specific areas, will decided by the Union Government.
The ceiling prices will undergo periodic revision to take into account fluctuations in international product prices. The group has recommended that a formula be worked out when fixing the ceiling prices, which would automatically take into consideration any changes in international prices.
The prices will also take into account the freight subsidies for supplying retail products to far-flung areas such as North-Eastern States, Jammu & Kashmir, Himachal Pradesh, Uttaranchal and Andaman and Nicobar Islands. These subsidies are required to contain the impact of freight on retail selling prices in far flung regions.
According to the report, with crude prices at $25 per barrel and an exchange rate of Rs 48 per dollar, the post-APM retail prices of diesel and domestic LPG between Delhi and Leh would be as high as Rs 3.30 per litre and Rs 142 per cylinder respectively. The proposed freight subsidy would work out to about Rs 500 crore per annum.
Currently, while fixing petro product prices, the Union Government does not take into account the actual freight charged. Instead, the prices are based on notional railway freight. The difference between the two is borne by the oil pool account. The tariff adjusted import parity refinery gate prices of controlled products for an inland refinery are the same as those of the nearest port refinery.
The Group has recommended phased and "gradual withdrawal'' of ceiling prices from to facilitate full deregulation.
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