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Monday, Apr 15, 2002

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Oil marketing cos to have pricing freedom

Shaji Vikraman
Hema Ramakrishnan

NEW DELHI, April 14

THE Government has decided to give oil marketing companies the flexibility to revise their product prices without the prior approval of the downstream regulator.

These companies will only be required to notify changes in tariffs to the regulator, according to a senior Government official.

Such a system is in contrast to the practice followed in the telecom sector where companies are mandated to change tariffs only with the prior approval of the Telecom Regulatory Authority of India (TRAI).

The idea of making it mandatory for companies to notify to the regulator any proposed increase in the tariffs of petro-products is to prevent undue profiteering by these companies, according to officials.

The regulator will be empowered to step in if it perceives attempts by companies at collusive or predatory pricing.

The mandate of the downstream regulator — the Downstream Petroleum Sector Regulatory Board — to be set up through an Act of Parliament, will be to regulate petro-product prices and pipelines in the post- administered pricing mechanism (APM) regime.

The Petroleum Ministry's proposal for a downstream regulator is based on the recommendations of the Naresh Narad Committee which examined a whole gamut of issues to be addressed in the post-APM regime.

The committee had said that the downstream regulator would be required in the post-APM regime to ensure delivery of petro-products at competitive rates to the remotest areas and avert any malpractices by market players.

In its draft Bill on the downstream regulator, the Ministry had made it mandatory for new entrants to submit a memorandum of entrepreneurship to the proposed regulatory board from time to time in the format prescribed by the board.

The Bill had also stated that the Government could manage and control retail outlets in public interest. This would, however, be for a specified period only after the affected entities were given a hearing.

Petro-marketing companies are now technically free to set product prices in a commercial manner and claim the subsidy on kerosene and LPG from the Government. However, the Petroleum Ministry has "advised'' the marketing companies (which are all currently state-owned) to hold prices of kerosene, LPG, diesel and petrol at the existing level for a three-month period.

The Government also wants to ensure that the volatility in international prices is not reflected in consumer prices on a daily basis.

In this context, the Petroleum Ministry has raised the issue of fiscal intervention — including a reduction in the excise duty and shift from ad valorem to specific duty rates — with the Finance Ministry.

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