Commission member BK Chaturvedi, will look into the "real and reported under-realisations of the oil marketing companies".
The committee also includes Saumitra Chaudhuri, member, Prime Minister's Economic Advisory Council, and Arvind Virmani, chief economic advisor to the government.
Under-recovery is the difference between the optimum or "desired" selling price of fuels and their retail selling price.
The government currently allows the oil companies to calculate the desired selling price primarily based on a method which assumes that the fuel is being imported, when in reality only a very small part of the total fuel consumption is actually imported.
The import parity based calculation adds cost such as freight, insurance and import duty, and also components such as refinery margins and marketing margins, to the global price of the fuel, which drives up the reported under-realisations.
The committee will also examine the impact of the increase in oil prices between 2004 and 2008 on the oil companies, including oil producers such as Oil and Natural Gas Corporation (ONGC), oil refiners and oil marketing companies Indian Oil Corporation (IOC), Bharat Petroleum Corporation and Hindustan Petroleum Corporation.
The import prices of crude oil have quadrupled since the beginning of 2004, while the retail prices of petrol and diesel have increased around 50 per cent since then. The cap on retail prices has put the oil marketing companies and the oil producers under severe financial strain.
The Chaturvedi committee will examine the cash flow and profitability of the oil firms. IOC, BPCL and HPCL have been going through a cash crunch as the prices of petrol, diesel, cooking gas and kerosene are subsidised, while the companies buy crude oil from global markets at global prices.
