New Delhi, February 03: The Kirit Parikh Committee, set up by the government to draft a fuel pricing policy, on Wednesday made a slew of recommendations including sharp rise in the cooking gas and kerosene prices, besides freeing retail pricing from the government regulations.
In a joint press conference with Petroleum Minister Murli Deora, Parikh said the country’s subsidy-driven fuel pricing policy has to be drastically overhauled to help the petroleum industry stay competent in an uncertain market environment.
“Current petroleum product pricing policy of the government is not sustainable,” Parikh said after submitting the report.
The committee has recommended an increase of Rs 100 per LPG cylinder and Rs 6 per littre of kerosene.
At present, the subsidy burden per cylinder of LPG is Rs 287, said Parikh.
He has also said the oil marketing companies are suffering a loss of Rs 3 per every litre of petrol being sold, suggesting freeing up the retail pricing of the commodity from government regulations.
“Diesel price has to be decided by the market,” he added.
Freeing petrol and diesel prices would result in an increase of Rs 3 per litre in petrol prices and Rs 3-4 in diesel prices.
The oil marketing companies in India do not have a free pricing mechanism in which prices of fuels like LPG, kerosene, petrol and diesel are decided on the basis of international crude oil costs.
Instead, India follows a subsidised fuel pricing mechanism in which these fuels are sold by state-run oil marketing companies at a fixed rate even if international prices of crude go up. As a result, many OMCs sustain losses when selling prices are even lower than production cost.
Petroleum Minister Deora told reporters that the recommendations of the Parikh Committee will be presented in the Cabinet in 10 days. A final decision on the recommendations, however, will be taken by the Prime Minister.
Though the oil ministry is understood to be supporting the deregulation move, it’s yet to be seen whether the government would go for such a drastic change in the pricing mechanism at a time when it’s battling high inflation.
Even a marginal increase in fuel prices would have cascading effect on the headline inflation, putting the government under more pressure.
Deora had reiterated this point on Tuesday.
“You know the government is very worried about the price rise. If hypothetically, there was an increase in diesel of Rs.2, then it will have a cascading effect on commodities,” the minister said.
The estimated under-recoveries of the oil companies in the last three quarters is Rs.29,000 crore, out of which upstream companies – ONGC and Oil India Ltd – have contributed Rs.8,000 crore towards losses from petrol and diesel.
The government has so far promised only Rs.12,000 crore as cash for under-recoveries from kerosene and LPG, but this leaves a shortfall of Rs.9,000 crore for the period April to December 2009.
The total estimated under-recoveries for this fiscal is Rs.43,000 crore, at a global oil price of $73 per barrel.
The new Petroleum Secretary S. Sundareshan said that one of his priorities would be to ensure “that OMCs (oil marketing companies) do not suffer from under-recoveries”. He said in the last two years, 2007-08 and 2008-09, after the upstream companies had made their contribution, the government had paid for the entire loss.
–Agencies