The government may consider cuts in excise duties to check abnormal increases in the retail prices of petrol and diesel in case international crude prices firm up.
Such a step, according to petroleum minister Ram Naik, is necessary to ensure that the consumer as well as oil marketing companies are not hit by surge in the global prices of crude oil.
"In extreme volatilities of global crude prices, change in excise duty is one instrument available. Naturally as a sector watchdog, I would be moving the finance minister as an when the situation demands," Naik said at a news conference called to announce modalities for the dismantling of administered pricing mechanism (APM) in the oil sector from April 1.
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While refuting that he had given any direction to oil PSUs to maintain retail prices petrol and diesel at the current level for three months after APM dismantling, the minister said: "I feel there should be stability in prices in the interest of consumers. Price changes should not be frequent. Changes can be effected every month or every three months."
The minister, however, admitted that spurt in international prices of crude oil after presentation of the budget where subsidy calculations were made on the basis of global crude price band of $ 20-22 a barrel, had increased the pressure on oil companies which had to take into account both consumer and commercial interest.
From April 1, consumer prices of petrol and diesel would be market-determined, while private companies would be allowed to market transport fuels, he said.
In the deregulated scenario, prices of petro products would be governed by import parity. Retail pricing, post-APM, would be based on imported cost plus freight and local taxes.
While the Union budget had factored international crude oil prices at $20 a barrel when it prescribed 32 per cent excise duty on petrol besides Rs 6 per litre surcharge and 16 per cent duty on diesel, crude prices have shot up to little less than $24 per barrel in this month.
An increase of $ 4 in crude oil prices translated into an additional burden of Rs 2.30 per litre on petrol, Rs 2 per litre on diesel, Rs 1.35 per litre on kerosene and Rs 15-20 per cylinder on LPG. "Domestic prices would be a reflection of increase or decrease in global prices," Naik said.
The minister said kerosene sold through public distribution system (PDS) would carry a flat subsidy of around Rs 3 per litre while domestic LPG would have a subsidy element of Rs 90 per cylinder. Besides, freight subsidies for supply of PDS kerosene and domestic LPG in far-flung areas would also be provided by the government. Subsidy on PDS kerosene and domestic LPG will be phased out in three to five years.
Dismantling of APM would also see indigenous crude oil produced by Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) being given market determined price, the minister said.
The Oil Coordination Committee would be abolished and the oil pool account would be wound up. The government would issue oil bonds of Rs 9000 crore to oil companies to liquidate their outstanding with oil pool account. The balance of the Rs 13,000 crore oil pool deficit would be liquidated after an audit by CAG.
A cell by the name of 'Petroleum Planning & Analysis Cell' would be created to monitor domestic and international market movements in the deregulated scenario, the minister said.
Private companies, who have invested or proposed to invest Rs 2000 crore in oil infrastructure, would be permitted to market petrol, diesel and aviation turbine fuel. Authorisation to grant marketing rights would be issued by the ministry till a regulator for the downstream petroleum sector is set up.
To set up a regulator for the downstream petroleum sector, the ministry has finalised the draft Bill which would be introduced in Parliament when it re-assembles after April 14, 2002. Till such time the regulator is in place, the ministry will oversee the functioning of the downstream oil marketing companies, Naik said.
The minister sought the cooperation of state governments in reaching the benefits of free pricing to the consumer since some states had decided to mop up the reductions announced in the retail prices of petrol and diesel by the Union government from March 1 by increasing sales tax rates.