`Free auto fuel pricing, up LPG rate by Rs 100/cylinder`

A govt panel on fuel pricing has recommended freeing retail pricing from regulation.

New Delhi: A Prime Minister-appointed expert
group on Wednesday suggested freeing petrol and diesel prices and
called for raising LPG rates by a steep Rs 100 per cylinder
and kerosene by Rs 6 a litre, recommendations that may not be
acceptable to the government battling high inflation.

At current global crude oil prices, deregulating auto
fuel pricing would result in a hike of Rs 4.72 a litre in
petrol prices and a rise of Rs 2.33 per litre in diesel rates.

Considering the cascading effect an increase in diesel
rates would have on food prices, this recommendation may not
be accepted while there seems to be a consensus between
ministries of finance and petroleum on freeing petrol prices.

"Current petroleum product pricing policy of the
government is not sustainable," Kirit Parikh, who headed the
panel, which also included Finance Secretary Ashok Chawala and
Oil Secretary S Sundareshan, said after submitting the report
to Petroleum Minister Murli Deora here.

At present, kerosene is sold at a discount of Rs 18.06 a
litre and domestic LPG cylinder at Rs 287.59. The remainder of
the gap between retail price (after the suggested increase)
and the imported cost of fuel should be met by the government
and by upstream firms ONGC and Oil India.

Parikh, did not see much inflationary pressure because of
the measures suggested saying the steps like increase in tax
rates needed to bridge the fiscal gap between the retail price
and actual cost was unsustainable.

Deora gave enough hints that the government will not take
any decision in haste saying the report will be "processed"
and presented to the government in a weeks time.

Sources said the government may accept the recommendation
of freeing petrol price but may adopt a more calibrated
approach on diesel as a rise in transportation cost will
further fuel food inflation.

A hike in LPG rates was expected but not as steep as
suggested while kerosene may not be touched.

Petrol in Delhi costs Rs 44.63 a litre while diesel is
priced at Rs 32.87. A 14.2-kg LPG cylinder costs Rs 281.20 and
and kerosene is priced at Rs 9.09 per litre.

Without any increase, Indian Oil, Bharat Petroleum and
Hindustan Petroleum are estimated to lose Rs 46,030 crore in
revenues this fiscal. As per the current policy, the revenue
loss on petrol and diesel is met by upstream firms like ONGC.
Of the Rs 31,574-crore revenue loss expected on LPG and
kerosene, the government has so far given Rs 12,000 crore.

He said hikes suggested by the panel in kerosene were in
step with the rise in rural per capita income since the last
increase was in 1999 (a hike of Rs 2 per litre to Rs 9.09.)

The rise recommended in domestic cooking gas rates was
also in proportion to the rise in urban per capital income.

Freeing auto fuel prices, which would promote competition
as the present policy has virtually driven private sector out
of business, has been suggested after considering its impact
on users, he said and added users had the capacity to pay.

"This is a good time to free prices because petrol and
diesel prices increases will be very low," Parikh said. "You
would not wait for crude to touch USD 120 a barrel again."

"There is no escaping from passing on the international
price (to consumers)," he said.

The committee suggested that LPG and kerosene prices can
be raised every year in step with the growth in per capital
agricultural GDP at nominal rates and per capita income

Parikh said the fiscal deficit-led inflation
(rise in prices of essential commodities caused because of the
government having to take fiscal measures like tax hikes and
borrowings) effects everyone including the poor and farmers.

Freeing petrol and diesel prices will not only promote
competition but also lead to more equitable sharing of
inflation burden, affecting mostly people who can pay.

"We have examined the implications of increase in retail
price of diesel on various groups of consumers and do not find
any compelling reason to subsidise them," the report said.

"The present system of price control on petrol and diesel
in particular has resulted in major imbalances in the
consumption pattern of petroleum products in the country, and
has put undue stress on finances of the PSU oil marketing
companies as well as of the Government," he said.

Parikh said a transparent and effective distribution
system for PDS kerosene and domestic LPG can be ensured
through smart cards. Until that becomes operations, kerosene
allocation across states should be rationalised which would
bring down all-India allocation by at least 20 per cent.

The panel did not recommend a windfall profit tax saying
the Oil Ministry ought to have flexibility in mopping up
incremental incomes of ONGC and Oil India for purpose of
meeting a part of fuel subsidies.

At present, the government does not allow state-running
fuel retailers to fix petrol, diesel, kerosene and LPG prices
in line with international cost, resulting in huge revenue
losses for the companies and subsidy burden on government.

This "has led to withdrawal of private sector oil
marketing companies (like Reliance Industries) from the
market. This has affected competition in the domestic
petroleum product market," Parikh said.

"A viable policy has to be workable over a wide range of
international oil prices... It should limit the fiscal burden
on government and keep the domestic oil industry financially
healthy and competitive," he said.

Parikh said petrol and diesel pricing should be left to
the competitive market process, while government can continue
to subsidise PDS kerosene and domestic LPG to some extent.

Deora said that the report will be processed and will be
put in before the government or the Cabinet in a week.

"We are very keen not just to discuss but see what best
can be done for the consumers and the Government," he said.

The Government had in September last year constituted an
expert committee headed by Kirit Parikh to suggest reform in
pricing of oil-products.

This is the third committee on the subject. Panels headed
by C Rangarajan, Chairman of the Prime Minister`s Economic
Advisory Council, made recommendations in 2006 followed by
Planning Commission member B K Chaturvedi in 2008.


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