being paid the equivalent of rates they would have realised if diesel, kerosene and LPG were exported. The export parity pricing, it felt would cut its subsidy outgo by Rs 13,000 crore.
Kirit Parikh said after discounting the quality specification of fuel exported by private refiners, the difference between the EPP and currently practiced trade parity pricing was only Rs 108 per kilolitre or 1.5 per cent.
"No country uses export parity pricing... and there is very little difference between export parity pricing and trade parity pricing," he said.
The committee was constituted as Finance Ministry was looking to alter the way diesel and cooking fuels are priced to reduce the subsidy burden.
Currently, diesel is priced at trade parity, of which 80 per cent is import price and 20 per cent export rate. Kerosene and LPG are priced at import parity.
The Finance Ministry wanted export parity pricing for diesel and kerosene in 2012-13 and wanted LPG to be priced through a 60-40 mix of export and import parity rates.
A shift to export parity pricing would have cut the subsidy on diesel by Rs 14,372 crore to Rs 77,689 crore in 2012-13. Another Rs 2,245 crore would have been saved on LPG and Rs 1,001 crore on kerosene during the period.
The savings would come from the removal of import duty and notional transportation cost in the import parity price.
Kirit Parikh said the 2.5 per cent is a very nominal duty protection given to refiners which if removed would give no incentive to private refiners to sell products domestically.
It would lead to private refiners exporting their fuel and public sector importing diesel at higher cost, he said.
"It makes sense to give protection to the domestic industry," he said.
The panel also suggested that upstream contribution to making up for fuel subsidy losses should be a maximum of 40 per cent of prices they realise on sale of crude oil if the rates are no more than USd 80 per barrel. For price realisation of USD 80 to 120, they should pay 40 per cent plus 0.25 per cent for each USD 1 increase beyond