Re-think on fuel import parity price

The Finance ministry is not convinced that oil companies continue to suffer

Petroleum minister Mani Shankar Aiyar will be revisiting the import parity formula for petrol and diesel with public sector oil marketing companies tomorrow to weed out 'irrelevant' constituents and arrive at a 'realistic' price for the two auto fuels.

During the "holistic review of oil policy", the minister will have a keen look at the formula, on which the retail prices of petrol and diesel are based, to gauge the real hit that the oil marketing companies are taking because of the spurt in the international prices of oil.

While it is widely expected that the government may try and fix a band in which prices of the two auto fuels could move and that there may be a price stabilisation fund to isolate consumer from high volatility in the international prices of crude, the minister is keen that the "unnecessary flab" in the import parity price should be done away with.

The finance ministry is not convinced that the oil companies continue to suffer under-recoveries to the tune of 27 paise on every litre of petrol and 15 paise on a litre of diesel sold even after an increase in their retail prices and a corresponding cut in excise duty announced recently, it is learnt.

While the entire quantity of petrol and diesel being consumed in the country is produced indigenously, the oil marketing companies are allowed to charge import parity price which comprises elements such as sea freight, port handling charges and customs duty of 20 per cent though these costs are never incurred by the companies.

Some officials in the petroleum ministry offer to justify it on the ground that "this is the opportunity cost that we have to give to these companies. In case these companies had not produce these products, the country would have had to import them. So they must get the same price as the cost of the imported product."

But the finance ministry does not buy this argument and says that a customs duty of 20 per cent was imposed on petrol and diesel to afford protection to the domestic refineries.

However, this duty along with other notional charges, should not be taken into consideration while calculating the cost of production which would then turn out to be much lower than the import parity price being given to the oil companies currently.