FinMin to release Rs.1 lakh crore oil subsidy

Shift to export parity price for petroleum products in offing

May 22, 2013 07:24 pm | Updated June 13, 2016 08:38 am IST - NEW DELHI

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.

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.