Not just explicit cuts, tweaked subsidy math also to help FM
KG Narendranath: New Delhi, Feb 13 2013, 03:39 IST
shifting to export parity pricing for calculating under-recoveries of oil marketing companies from the existing trade parity model. If this model were implemented in 2012-13, OMCs’ under-recoveries would have been R18,000 crore less (Full-year under-recoveries are now estimated at R1.67 lakh crore). Under this system, OMCs will be considered entitled to fetch refinery gate prices equal to a defined, average export (FOB) prices of their products (petrol, diesel, cooking gas and kerosene) in select markets and the difference between the price realised by them and the export price determined will be treated as under-recoveries, to be compensated through subsidies. The proposed method will allow more savings for the government on the subsidy front because the export parity price is bound to be lower than the trade parity price which is sum total of landed cost of imports and export price in the 4:1 ratio.
This is because while export and import prices don’t vary too much, landed cost of imports includes tariff, domestic taxes and transportation charges, unlike export price which doesn’t include import tariffs and transportation charges.
The plan could pinch oil companies, though. Downstream oil PSUs must find alternative ways to boost revenue (improving refinery margins, for instance).
The OMCs’ concerns have already been expressed through their apex body Petroleum Federation of India, which sought to highlight that Indian refiners, in general, incur higher energy charges and pay more freight compared with their West Asian counterparts It is not clear if the upstream companies whose share
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