Also suggests axing LPG, kerosene subsidies in 3 years

At a time when the Government is under attack for failing to control inflation driven by high food and fuel prices, the Kirit S. Parikh Committee’s report on pricing diesel, domestic LPG, and PDS kerosene may hand the Government another political hot-potato.

The report is likely to suggest an immediate increase in diesel prices by at least Rs 4 a litre and, thereafter, doubling the current pace of increase in diesel prices to Re1/month. It also wants the Government to stop subsiding kerosene and domestic cooking gas within three years.

The report is likely to be submitted on Wednesday.

However, it remains to be seen whether the Government will bite the bullet at a time when five States are going to polls and Parliamentary elections are round the corner.

According to industry sources, the Parkih panel may stick closely to its draft report (which was discussed last month) that suggested that diesel price be increased by about Rs 4/litre immediately to offset the revenue loss incurred by public sector oil marketing companies (OMCs) for selling the fuel at lower than cost price.

Though the OMCs have been allowed to increase diesel price by 45-50 paise a litre every month, the Government continues to monitor this increase, and has even stayed it when elections were imminent in some States.

Sources said the panel is of the view that to control losses on subsidising diesel, which has significant adverse impact on the economy, the price of the fuel should be made market-determined immediately, both at the refinery-gate and at the retail levels, as was done for petrol in June 2010.

Trade parity

In its draft report, the panel had said that until diesel pricing is made market determined, the existing pricing mechanism based on trade parity should continue. The refinery-gate price of diesel since 2006 has been based on trade parity pricing — 80 per cent of import parity price and 20 per cent of export parity price.Import parity price represents what importers would pay in case of actual import of the product at the respective Indian ports, while export parity price is what oil companies would realise on export of petroleum products.

The panel was against tinkering with the existing pricing formula, which, even if modified, will not solve the problem of mounting losses on sale of price-controlled products because of high international crude prices and rupee depreciation.

It felt the Government should take steps to partially pass on the impact to the consumers and move towards making the price of diesel market linked immediately and those of PDS kerosene and domestic LPG in about three years.

The public sector oil marketing companies have been maintaining that export parity pricing was not viable for their refineries. Private refiners such as Essar and Reliance have been seeking market-determined pricing for all fuels and providing consumers a choice by promoting competition.

richa.mishra@thehindu.co.in

siddhartha.s@thehindu.co.in

(This article was published on October 28, 2013)
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