Oil ministry officials say it is unlikely that the government will accept the BK Chaturvedi Committee’s recommendation for raising the retail prices of petrol and diesel as it faces general elections in less than a year. The move also risks putting pressure on inflation, which has already crossed a 13-year high.
However, the recommendation on how much the oil refiners will get for their products will be the only one that is likely to be adopted, they say.
The committee has said that the refiners should be paid what exporters get for a similar product (export parity price), instead of the current payment of what importers shell out.
However, various industry officials are sceptical and say an action on the report is unlikely. “Under current conditions, freeing prices of petrol, diesel and LPG is not likely to happen,” said a senior official in the petroleum ministry.
The committee has recommended that petrol prices be increased by Rs 2.50 every month to align them with international prices by March 2009, and that diesel prices be raised by 70 paise per month so that they can be market-determined by March 2010.
The committee has also suggested that a maximum of six subsidised LPG cylinders be given per household this year, which should be gradually phased out by March 2011.
Government officials say the recommendations will be difficult to implement at a time the inflation rate is at a 13-year high and the government will face elections next year. When fuel prices were increased by around 10 per cent on June 4, inflation rose by over a full percentage point as a result.
More From This Section
Petroleum Minister Murli Deora declined to comment on the report.
The oil marketing companies — Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) — are also sceptical about the implementation of the recommendations.
Two officials of public sector oil companies said the recommendations of the committee were in line with the marketing companies’ expectations. “These are just recommendations. It remains to be seen how much of it will be implemented,” said a top official with an oil marketing company.
The recommendations of the committee are also almost the same as those made by the C Rangarajan Committee on pricing and taxation of petroleum products which submitted its report in February 2006. Both committees recommended freeing prices of petroleum products and the government moving away from controlling prices of petrol, diesel and LPG.
“Every one knows what needs to be done. If only the Rangarajan Committee recommendations are implemented, we will not need any other committee,” IOC Chairman and Managing Director Sarthak Behuria said in an interview recently.
Petroleum ministry officials say the recommendations of the two reports are bound to be similar as the fundamentals of the industry have not changed since the Rangarajan panel submitted its report.
OIL PANELS' RECOMMENDATIONS:MIRROR IMAGES The BK Chaturvedi Committee, constituted by the prime minister to look into the financial health of oil marketing companies, has come up with recommendations that have the same thrust as the suggestions of the C Rangarajan Committee, which submitted its report in February 2006. Here is a comparison between the two: |
PRICING OF PETROLEUM PRODUCTS |
Rangarajan |
* The government should keep at an arm’s length from price determination and to allow flexibility to oil companies to fix the retail price under the proposed formula |
Chaturvedi |
* The government should disengage from the process of pricing of petroleum products and allow pricing to be an outcome of a competitive market process |
Rangarajan |
* Petroleum product prices should be, as far as possible, aligned to international prices |
Chaturvedi |
* Monthly revision on petrol and diesel prices so that the prices of petrol align with international rates by March 2009, and that of diesel by March 2010 |
Rangarajan |
* Shift to trade-parity pricing for determining refinery gate prices, as well as retail prices; regular reviews to move towards export-parity pricing |
Chaturvedi |
* Shift to export-parity pricing |
KEROSENE & LPG |
Rangarajan |
* Restrict subsidised kerosene to only below poverty line families |
* Increase LPG prices by Rs 75 per cylinder at one go and gradual increases thereafter to the market level and, thus, eliminate the subsidy. |
Chaturvedi |
* Subsidised kerosene and LPG for BPL households only |
* Supply of subsidised LPG to others should be phased out by March 2011 |
TAXATION |
Rangarajan |
* Reduce Customs duty on petrol and diesel to 7.5% from 10% |
* Remove ad valorem levies on petrol and diesel to a specific rate of Rs 5 per litre for diesel and Rs 14.75 per litre for petrol |
Chaturvedi |
* Customs duty on petrol and diesel should be reduced to zero from the current 2.5% |
OIL PRODUCERS |
Rangarajan |
* Discontinue the practice of ONGC, OIL and GAIL giving discount to the oil marketing companies. Instead increase the Oil Industry Development Board (OIDB) cess from Rs 1,800 per tonne to Rs 4,800 per tonne |
Chaturvedi |
* No discount from oil producers. Instead, a special oil tax to be levied on oil production from blocks given before the New Exploration Licensing Policy (Nelp) regime started in 1999. State-owned producers should give the entire incremental revenue to the government if they sell oil at over $75/barrel. Private producers should give 40% of the incremental revenue to the government |
Compiled by |
“This shows that another committee was not really needed,” one official added.