The Hindu Business Line : Duty cuts on petroleum products unlikely

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New Delhi Feb. 27 Consumers and oil companies need not expect any drastic cuts in duties on petroleum products in the Union Budget to be presented on Wednesday.

The Economic Survey 2006-07 tabled by the Finance Minister, Mr P. Chidambaram, on Tuesday, has ruled out any steps involving "an expensive compromise of fiscal rectitude" in order to strike a balance between the interests of consumers and oil companies.

The Survey cautions against compromising on fiscal health, when trying to make fuel affordable, while paying a remunerative price to oil refining companies.

"Finding immediate answers to inflation induced by commodity specific supply shortfalls is difficult... There is a need to recognise that there could be a potential contradiction between a remunerative price for the farmer and a fair price for the consumer in the short run. The same contradiction arises in the case of pricing of petroleum products. The reconciliation of such a contradiction ought not to be in terms of an expensive compromise of fiscal rectitude," the Survey said.

Protecting consumers

While protecting the consumers and the bleeding state-owned oil marketing companies (OMCs) from the surging international crude price, there was an upward revision in retail selling prices (RSP) of petroleum products — petrol and diesel — on June 6, 2006. The pass through on the consumers was restricted to just 12.5 per cent in a three-way burden sharing arrangement among the consumers, the Government and OMCs, the survey said.

With the softening of international prices, the RSP of petrol and diesel were reduced by Rs 2 and Re 1, respectively, with effect from November 30, 2006 and again by the same amount with effect from February 16, 2007. However, the prices of kerosene on public distribution system and domestic liquefied petroleum gas were not touched.

The Government also decided to issue bonds worth Rs 28,300 crore to OMCs for losses suffered due to non-revision of prices, in respect of sensitive petroleum products for the current financial year 2006-07. During the year 2005-06, bonds worth Rs 11,500 crore were issued. The marketing companies' under recoveries on sale of PDS kerosene and domestic LPG in April-September 2006 were Rs 14,875 crore, while that on petrol and diesel were Rs 18,310 crore.

New highs

For the full fiscal 2005-06, under-realisation on kerosene and LPG was Rs 24,630 crore, and Rs 15,370 crore on petrol and diesel. The under-realisation are partly met through issue of oil bonds and upstream companies like ONGC.

Prices of crude oil and petroleum products reached new highs in the past two years, compelling commensurate increase in domestic prices, the Survey said. However, to protect the consumer from the rise in international prices, the domestic fuel prices were not raised in line with the global prices.

"International prices of oil are projected to remain high in winter, with OPEC announcing a cut in output by 1.2 million barrels per day with effect from November 1, 2006 and a further cut by 0.50 million barrel per day with effect from February 1, 2007 with a view to maintain oil prices," it added.

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