What Price Caution?
-
24/08/2008
-
Outlook (New Delhi)
Suggestions
Refinery gate price to be fixed on average of global petro product prices
Fuel quality to set retail price; transparency on profit/taxes charged
Segmentation of diesel according to use
Monthly hike in petrol, diesel and LPG prices; retain
targeted subsidies
Windfall tax on over $75 pb of oil from exploration blocks awarded before 1999 To impact mainly ONGC; leaves out issue of high refinery margins
Potential outcome
Will hopefully end debate on different gate prices, will bring transparency
Should help OMCs realise value, promote quality
Doable but requires political will, monitoring
A politically volatile decision, has never been done thus far
A large dollop of deja vu is what you get when oil subsidies and pricing are mixed with a report from yet another 'high-powered' panel.
"With spiralling oil subsidy, India has to engage in demand management. The rich have to pay more." B.K. Chaturvedi, chairman, govt panel
Nobody in government, it seems, wants to digest the bitter truth now that elections are drawing near. A fortnight after the B.K. Chaturvedi panel submitted its recommendations on the financial position of the oil companies to the prime minister, it's not yet in the public domain. Sure, the 55-page report has surfaced in the media, but the government is waiting to "deliberate over it in detail".
That's not surprising, for the report has urged the government to phase out subsidies on transport and cooking fuels over the next two years. What sounds like a political hot potato can also be seen as an economic disaster in the making, as oil subsidies this year may well be around Rs 2,00,000 crore. "The rich will have to pay more while the poor can be subsidised. Demand management is critical and every country is trying to do so. India has to do it too," Chaturvedi told Outlook, hoping the report will be studied and implemented.
But ask petroleum minister Murli Deora if the recommendations can be implemented, and he admits, "Some areas yes, some areas no," declining to elaborate, pending a "full-fledged internal meeting next week to review it". Surely he knows that suppressed prices are leading to skewed consumption patterns. Consumers pay just half the market price of a cooking gas cylinder, while a litre of petrol and diesel is subsidised to the tune of Rs 12 and Rs 23, respectively. The huge subsidy on kerosene makes it attractive for adulterating more expensive fuel. Why, it's led to a situation where even a state-owned oil marketing company's (OMC) retail outlet offers you "cheap" fuel.
Maintaining the tenor of many past reports, the three-member Chaturvedi panel has suggested ways by which the government can recoup revenues to redeem the oil bonds it has been issuing to OMCs to partly compensate for their "under-recoveries". Here, it has suggested a "special oil tax" on any earnings over $75 per barrel from exploration blocks given out prior to 1999.
If implemented, this will largely impact ONGC