Submits dissent note to panel report

In what could be interpreted as a Government not wanting to take any chances with the ‘aam adami’ during elections, the Finance Ministry has opposed the Kirit Parikh panel’s proposal to hiking the price of diesel, domestic LPG and PDS kerosene.

The panel has suggested that diesel prices be increased by Rs 5/litre, subsidised domestic LPG by Rs 250/cylinder, and kerosene being sold under the public distribution system by Rs 4/litre immediately, as well as subsequent phase-out of subsidy on all these products.

It also suggested bringing down the cap on subsidised domestic LPG cylinders available to every household annually to six from nine.

The expert group, which submitted its report on Wednesday to M. Veerappa Moily, Minister for Petroleum & Natural Gas, said the balance loss on diesel should be met through a fixed subsidy of Rs 6/litre to public sector oil marketing companies (OMCs). This would mean freeing the price of diesel beyond this cap. Currently, these OMCs are incurring a loss of Rs 10.24/ litre for selling diesel at a controlled price.

“Since the Government has already decided to eventually free diesel price, there is no need to tinker with the existing pricing formula of trade parity, which, even if modified, will not solve the problem of mounting under-recoveries incurred on sales of controlled products, mainly due to high international crude prices and depreciation of Indian rupee,” Parikh said.

This has been opposed by the Finance Ministry representative in the panel, in his dissent note saying there was no reason for the Government to pay notional import duty on diesel to public and private refiners, as they were not paying customs duty on it.

The refinery gate price of diesel since 2006 is based on trade parity pricing – 80 per cent of import parity price and 20 per cent of export parity price.

According to the Finance Ministry, customs duty is an element of import parity pricing – the price that importers would pay in case of actual import at Indian ports. It said the existing mechanism had also been criticised by the Comptroller & Auditor General and the Standing Committee on Finance, especially with regard to ‘over-compensating’ private refiners. The Finance Ministry has pitched for export parity price, which is the price that oil companies would realise on export of products.

Upstream contribution

Another issue on which the Finance Ministry differed was upstream contribution.

The upstream public sector oil companies – ONGC and Oil India – meet a certain portion of the loss incurred by public sector OMCs. The panel has suggested three slabs for upstream contribution. When crude oil price is at $80 a barrel, the upstream contribution will be 40 per cent of the price, at $80-$120 a barrel, the contribution would be 40 per cent plus 0.25 per cent for each dollar a barrel increase beyond $80/barrel.

For crude price above $20 a barrel, the contribution would be 50 per cent of the price. For this financial year, it has been suggested that the contribution be retained at $56/barrel.

The Finance Ministry felt that if the slab was accepted, it would result in higher subsidy outgo from Government’s kitty, which is already under pressure.

(This article was published on October 30, 2013)
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