Oil & Gas reforms on front burner

Jan 22 2013, 12:11 IST
Comments 0
M Veerappa Moily, petroleum minister M Veerappa Moily, petroleum minister
SummaryThe UPA government is going the whole hog on its plan to move towards fully market-determined pricing of diesel, which accounts for 60% of this year’s estimated fuel subsidy bill of Rs.1.7 lakh crore.

got defence ministry clearance for a long time, despite production sharing contracts being signed by investors. These are among 52 blocks awaiting defence/environment clearances where Indian and foreign companies have already invested $12.4 billion. India is holding back clearances for more than a fifth of the exploratory blocks it has auctioned in various rounds since 1999 to domestic and overseas energy explorers due to defence, environmental and maritime boundary issues.

Last Thursday’s one-liner from the oil ministry to the three state-run OMCs had merely allowed them to make “small price corrections (in retail diesel prices) from time to time.” Apparently acting on oral directions, the companies raised prices by about 50 paise the same night, reducing their under-recoveries on the fuel to Rs 9.1/litre. The OMCs later said the correction in retail price, along with price deregulation of bulk diesel, would reduce their under-recoveries by some Rs 15,000 crore on “annual basis,” but pleaded ignorance on whether there would be similar corrections in retail prices for every month till the under-recoveries on the fuel are nullified.

For domestic LPG and kerosene, under-recoveries stand at Rs 490.50/cylinder and Rs 30.64/litre respectively. OMCs incur daily under-recoveries of about Rs 380 crore on the sale of diesel, kerosene and domestic LPG.

The government reckons that once both petrol and diesel are deregulated completely, private oil companies which have idled their retailing network and deferred expansions, would start investing heavily. Market-determined pricing for bulk consumers, which account for a fifth of diesel consumption in the country, might prompt firms like Reliance and Essar to venture into the market.

Sources said the finance ministry, in parallel, is considering shifting to 100% export parity formula for estimating under-recoveries of oil companies, a move that would reduce the OMCs’ under-recovery claims. (The current trade parity pricing combines import parity and export parity in the ratio of 4:1 to decide the refinery-gate price due to OMCs. The mark-up of trade parity over export parity is about 5%).

While the export and import prices don’t vary too much, the import-parity price (landed cost) – which includes tariffs, duties akin to domestic products and transportation charges – works out to be higher than the export-parity price, which is exclusive of import tariff (basic customs duty) and transportation (port and shipping) charges. So, a shift to 100% export parity pricing would mean a reduction in under-recoveries as approved by the finance ministry and correspondingly lower

Single Page Format
Ads by Google
Reader´s Comments
| Post a Comment
Please Wait while comments are loading...