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With the petroleum and finance ministries sparring over the estimated subsidy loss for oil marketing companies and export parity pricing, a truce was called at a meeting chaired by Prime Minister Manmohan Singh today.
It was decided the current practice of trading parity pricing would be followed for the subsidy dole for the quarter ended March, but the future course would be decided after a committee under Kirit Parikh submitted its report within two months. At the meeting, it was decided the Parikh committee would be entrusted with looking into the export parity pricing issue. The finance ministry agreed to pay Rs 45,000 crore as subsidy for the second half of 2012-13.
Petroleum Minister M Veerappa Moily said, “Today, both Finance Minister P Chidambaram and I attended the meeting called by the prime minister. A few concerns were raised by both of us. Regarding export parity pricing, the Parikh committee has been asked to come up with suggestions in the next two months. Based on that, the Cabinet would take a call on it. However, the finance ministry has agreed to pay the compensation for oil marketing companies for the second half of this financial year.”
For the first half of 2012-13, the finance ministry had paid Rs 55,000 crore. For 2012-13, state-run oil marketing companies Indian Oil, Hindustan Petroleum and Bharat Petroleum reported Rs 1,61,029 crore of gross under-recoveries. This was significantly more than the under-recoveries of Rs 1,38,541 crore in the previous financial year.
“The finance ministry has agreed to pay another Rs 45,000 crore, taking the entire government contribution to Rs 1,00,000 crore. Upstream companies are contributing the remaining amount of about Rs 60,000 crore,” said Petroleum Secretary Vivek Rae.
The finance ministry was batting for a change in the formula to calculate export parity pricing, against import parity pricing. Ministry officials said there was a broad consensus on shifting to the new formula for calculating under-recoveries for this year. However, for the last quarter of 2012-13, the existing formula would be used.
The new formula is expected to result in savings of about Rs 15,000-18,000 crore a year, as it wouldn’t include costs such as transportation. Currently, this subsidy is calculated in terms of import parity pricing, which involves 80 per cent of import parity price and 20 per cent of export parity price. The new methodology was mooted by the finance ministry to reduce under-recoveries, as customs duty of 2.5 per cent (according to import parity pricing) was going as under-recoveries, without contributing to the exchequer.
Since May 16, oil marketing companies are incurring daily under-recoveries of about Rs 252 crore on the sale of diesel, kerosene and domestic liquefied petroleum gas (LPG). For the previous fortnight, it was Rs 256 crore a day. Now, the under-recovery on diesel is Rs 3.73 a litre, on kerosene Rs 27.93 a litre and on domestic LPG Rs 378.38 a cylinder.
Due to concerns over the decision on export parity pricing, the shares of BPCL, Hindustan Petroleum Corporation and Indian Oil Corporation plunged between three to five per cent. While HPCL shares were hit the most seen down 4.6 per cent to Rs 290.8, IOC stocks dropped to Rs 292.8 down 3.8 per cent and BPCL 3.3 per cent to Rs 389.2.
FinMin agrees toRs 1 lakh cr diesel, LPG subsidy for FY13
The finance ministry today agreed to dole out a record Rs 100,000 crore towards diesel and cooking fuel subsidy in 2012-13 but wants the pricing formula to be changed from the current year to cut down the outgo.
THE NUTS AND BOLTS
- | From June 16, 2006, trade parity pricing gives import parity and export parity 80% and 20% weight, respectively
- Export parity price represents the price which oil companies would realise on export of product. It consists of Persian Gulf price without freight
- Import parity price for petrol and diesel comes with a tariff protection equivalent to 2.5% Customs duty on these
- Since more than 90% of the refining cost of OMCs is crude oil, OMCs argue the trade pricing mechanism should continue
- The finance ministry’s move is expected to squeeze gross refining margins of refiners
- The new methodology was mooted by FinMin to bring down the under-recovery
| Product | Under Recovery (Rs/Crore) | ||
| 2012-13 | 2011-12 | 2010-11 | |
| Diesel | 92,061 | 81,192 | 34,706 |
| PDS Kerosene | 29,410 | 27,352 | 19,484 |
| Domestic LPG | 39,558 | 29,997 | 21,772 |
| Petrol | -- | -- | 2,227 |
| Total | 161,029 | 138,541 | 78,190 |
