Oil cos may get more freedom in pricing

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Richa Mishra

New Delhi, Feb. 14

AFTER a gap of almost three years, the oil marketing companies (OMCs) may have more say in fixing the petroleum product pricing.

The Rangarajan Committee, which is expected to submit its report this week, is said to be in favour of providing a larger role to the OMCs in deciding petroleum product pricing, particularly petrol and diesel.

After the dismantling of the Administered Pricing Mechanism in April 2002, there have been divergent views on the method of calculating retail prices, which had led to the Government assuming the power to fix retail prices through a Cabinet decision instead of taking inputs from OMCs. This is despite the April 2002 order clearly stating that market determined prices would be fixed by the OMCs. On subsequent occasions, the Government also deferred any price increase, mainly out of political compulsions.

Indian Oil Corporation, including IBP Co, suffered a total under recovery of Rs 9,020 crore on the four products in April-December 2005.

Sources also said that the Rangarajan committee might suggest that retail prices be worked out on the basis of `export-import parity' instead of landed cost (import parity) at present. The export-import parity price would be on a weighted average basis on an 80:20 ratio. The committee, after analysing the experience of import parity system, is said to have found that the existing system unduly soars the retail prices and many of the components for working out prices are notional in nature.

The committee is also likely to recommend abolition of the freight equalisation scheme, which means petrol and diesel prices may be slightly higher in the northern sector than those prevailing in places such as Chennai and Mumbai. However, there would be no recommendation on a uniform sales tax policy for petroleum products because of sales tax being a State subject.

The committee is also likely to suggest reduction in the custom duties on all major products, sources said.

The Rangarajan Committee was set up to work out medium to long-term pricing policy, is also likely to recommend a combination of marginal increase in fuel prices issuance of oil bonds and duty cuts.

The measures being suggested by the committee are expected to prevent losses suffered by public sector oil companies. It is likely to recommend raising petrol price by Rs 1.25 a litre and diesel by Rs 2.20 per litre and reducing customs duty from 10 per cent to 7.5 per cent.

The committee is also likely to suggest dual price for kerosene. For cooking gas, the committee is expected to suggest a hike of Rs 75 per LPG cylinder effective from April 1. Subsequently, an increase of Rs 25 each quarter for above poverty line (APL) families. While for kerosene there would be no change in price for below poverty line families, it is likely to propose a market-determined price for APL.

Related Stories:
C. Rangarajan to head petro-products pricing panel
Petroleum pricing: In defence of oil marketing companies

(This article was published in the Business Line print edition dated February 15, 2006)
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