Duties on oil products may be tweaked

Oil ministry favours duty cut to keep prices static.

The petroleum ministry is revisiting some of the levies on petrol and diesel to ensure that the new government at the Centre does not have to increase the retail prices.

Aware of the pressures the new government may face on the oil prices front after taking office next week, the petroleum ministry is looking at petrol and diesel levies, which constitute 138 and 57 per cent of the retail price of the two products, respectively.

The ministry is learnt to be studying the structure of "import parity price" that the domestic oil marketing companies are allowed to charge the consumer of the two auto fuels. One of the components of the import parity price is a 20 per cent customs duty on the two products.

The ministry is of the view that customs duty was imposed on the two products in order to protect the domestic refining industry.

Since the "import parity price" is given to domestic refiners for the petrol and diesel produced within the country, and the refiners do not have to pay import duty on them, customs duty should not form a part of the "import parity price".

Officials point out that while arriving at the "import parity price", companies should be allowed to factor in only the 10 per cent customs duty that imported crude attracts.

The petroleum ministry is certain that there is ample cushion in the "import parity price" to absorb the recent spurt in the international prices of crude.

This is evident from the fact that after the ministry's recent negotiations with Reliance, public sector oil marketing companies have been demanding a discount in the prices of petrol and diesel, which they will be lifting from the private sector refiner.

Moreover, the ministry is also considering the option of asking the finance ministry to cushion the hike in the retail prices of petrol and diesel by dipping into the revenue generated by Rs 6 a litre surcharge on petrol.

The surcharge was imposed in Budget 2002-03 to provide for subsidy on cooking gas and kerosene since the cross-subsidy mechanism in the petroleum sector through the oil pool account was abolished with the dismantling of the administered pricing mechanism (APM) that year.

Although the subsidy on these two popular cooking fuels has been gradually reduced over the past two years, and now stands reduced to one-third of that prevailing in 2002-03, there has been no change in the surcharge.

Petrol and diesel prices were last revised by public sector oil marketing firms on December 31-January 1 and the international prices of oil have been going up steadily after that.

Brent (dated), which was hovering around $31 a barrel in the international market on January 1, touched $ 38.85 a barrel yesterday.

While public sector oil firms have asked the petroleum ministry to raise petrol prices by Rs 3 per litre and diesel prices by Rs 5 per litre in step with the rise in international crude oil prices, the Left Front, which is supporting the new government from outside, is expected to oppose the proposal tooth and nail.

Ministry on a boil
Well-oiled policies

• Studying structure of the import parity price
• Believes there is ample cushion in the import parity price to absorb the recent spurt in international oil prices
• Considering the option of asking the finance ministry to cushion the hike in retail prices