Shift to export parity price for petroleum products in offing

Following the intervention of Prime Minister Manmohan Singh, the Finance Ministry has been pushed to release nearly Rs.1 lakh crore in petroleum subsidy for 2012-13 for the three oil marketing companies (OMCs) with a caveat that the Petroleum Ministry would shift to export parity price (EPP) for pricing of petroleum products.

This move is likely to save Rs.18,000 crore in subsidy outgo.

The move to shift to a new formula for pricing of petroleum products would be done soon after the submission of a report by Kirit Parekh panel, which is looking into the issue. The Finance Ministry is of the view that petrol and diesel should be priced at a rate they can get in export market, rather than the present practice of pricing the fuels after adding transportation cost and customs duty to the international price. The subsidy issue was resolved after a meeting between the Finance Minister, P. Chidambaram, and Petroleum and Natural Gas Minister Veerappa Moily in the presence of Dr. Singh.

The difference between the EPP and the present formula of trade parity price (TPP) is about $3-4 a barrel. It had been decided to take a final call on the issue after the submission of the report by Kirit Parekh panel, Mr. Moily said.

Officials said shifting to the EPP formula would help save about Rs.18,000 crore of subsidy. However, the oil companies are opposing this formula arguing that they pay customs duty on importing raw material (crude oil), and, naturally, should be allowed to charge the same on products they sell. In fact, private refiners such as Reliance Industries Limited (RIL) and Essar Oil are also likely to take a hit if EPP formula is implemented. RIL may take a hit of Rs.2,500 crore on the 10.5 million tonnes of diesel it sells to state-owned retailers while Essar’s profit may be dented by Rs.1,860 crore on 7.5 million tonnes of diesel it sells.

The Finance Ministry, which earlier gave cash subsidy of Rs.55,000 crore, agreed to give another dole of Rs.40,000-45,000 crore to cover unmet revenue losses on fuel sale in the fiscal year ending March 31, 2013. The OMCs lost around Rs.161,029 crore on selling diesel, domestic LPG and kerosene at subsidised rates which are way below market price. Of this, the government has provided Rs.55,000 crore by way of cash subsidy, and about Rs.45,000 crore was made good by upstream firms such as ONGC.

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