Relook into oil import parity price

Move to help government arrive at a 'realistic' price for petrol and diesel

The government has decided to revisit the import parity formula for petrol and diesel pricing to weed out "irrelevant" constituents and arrive at a "realistic" price for the two automobile fuels.

During the "holistic review of the oil policy", the government intends to take a look at the formula on which the retail prices of petrol and diesel are based, in order to gauge the real impact on oil marketing companies because of the spurt in international oil prices. 

Sources say the finance ministry is not convinced that oil companies will continue to suffer under-recoveries to the tune of 27 paise on every litre of petrol and 15 paise on a litre of petrol sold, despite an increase in their retail prices and a corresponding cut in excise duty announced yesterday.

While the entire quantity of petrol and diesel being consumed in the country is produced indigenously, oil marketing companies are allowed to charge the import parity price, which comprises elements such as sea freight, port handling charges and a Customs duty of 20 per cent, though these costs are not incurred by the companies.

"This is the opportunity cost that we have to give to these companies. These companies' argument is that in case they do not produce these products, the country will have to import them. So they must get the same price as the cost of the imported product," said a senior petroleum ministry official.

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

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

"This will not only show that the oil companies are not incurring any under-recoveries on the two fuels, but may even be making a marginal profit," a finance ministry official said.