The Hindu Business Line : Petro-goods pricing: Panel may suggest revenue-neutral formula

THE Dr C. Rangarajan Committee set up to formulate a long-term policy on pricing and taxation of petroleum products is likely to suggest a revenue-neutral mechanism to the Government.

The committee is expected to submit a detailed report to the Prime Minister, Dr Manmohan Singh, by month-end, thus setting into motion deliberations for budgetary provisions for the petroleum sector, official sources said. This in effect could mean that the Government would come out with a long-term pricing policy for petroleum products before the end of March 2006.

The Rangarajan committee has already had five rounds of deliberations, including with those who have been impacted by the existing pricing policy. Further, the new Petroleum Secretary, Mr M.S. Srinivasan, has also had an intense deliberation on Monday with Dr C. Rangarajan.

Another meeting is likely to be on January 5 to firm up the broad parameters of the proposals to be submitted by the committee before the Prime Minister. In spite of reduction in duties on petroleum products, the Central Government revenues on this account in the past five years had gone up from Rs 40,000 crore to over Rs 75,000 crore. The State Government revenues also increased significantly to Rs 40,000 crore from Rs 20,000 crore.

The under-recoveries suffered by the oil marketing companies (OMCs) had also moved up sharply as they continued selling the products below the cost price. The under-recoveries had gone up to Rs 39,000 crore in the current financial year mainly due to higher losses on the sale of LPG and kerosene by oil marketing companies.

Indications are that the prices of four major petroleum products — petrol, diesel, LPG and kerosene — will not be changed till the end of the current financial year.

The revenue compulsions of the Government would leave little leeway for a significant reduction in petroleum products pricing, sources said. Further, with the international oil prices hardening, there is little scope for reducing the prices of petroleum products. Oil bonds to be issued by the Government to public sector OMCs, coupled with cross-subsidy provided by upstream entities is expected to enable the PSUs to withstand the impact of rising oil prices, sources stated.