‘Trade parity pricing for energy sources in phased manner’

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New Delhi, Oct 6: The government remains committed to the idea of trade parity pricing mechanism for all commercial primary energy sources, mooted by the Integrated Energy Policy (IEP) drafted two years ago. But with oil and gas prices, Planning Commission member (energy) Kirit Parikh has argued that the transition to trade parity price would have to happen in a phased manner.

Speaking to FE, Parikh, who is in charge of finalising the IEP before it is placed for Cabinet approval later this month, said, “In the current kind of a large bubble in the energy prices, it will not be possible to move to that (trade parity price) right now. It might require some phasing. The principle (mentioned in the IEP) remains the same. We should accept the principle of trade parity price.”

Trade parity price is a mix of import parity and export parity prices, with more weightage given to the former. Under import parity, oil price will be equal to the world price plus transport, tariff and other costs the customer would bear if they were to import. India had moved to trade parity price in 2006 following a notification from the Finance Ministry.

Incidentally, the high-level B K Chaturvedi committee on pricing of fuel which submitted its report in August this year has suggested, among other things, shifting to export parity price. Under the export parity model, the price is set in line with the global rates, minus any transport, tariff. The supplier would incur any other cost if the product is exported.

According to the draft IEP cleared by Prime Minister Manmohan Singh at a Full Planning Commission meeting held on September 20, prices of different fuels should not be set independently of each other. ‘As a general rule, all commercial primary energy sources must be priced at trade parity prices at the point of sale, namely the Free-on-Board (FOB) price for products for which the country is a net exporter and Cost, Insurance and Freight (CIF) price for which it is a net importer,’ it states. Under the trade parity pricing mechanism, the price of a product for which the country is self-sufficient in a competitive market with many suppliers and buyers, would fluctuate between the two depending upon the ease of import or export and reliability of supplies.