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 subsidy payouts.
The 2006 Rangarajan committee, which proposed trade parity pricing contended import-parity pricing amounted to allowing OMCs to enjoy a rent akin to ocean freight and associated costs while export-parity price would put domestic refineries, especially PSUs, at a disadvantage. “Effective benefit from import duty protection and various notional expenses amount to about 4-5% for OMCs on the key products, impacting GRMs by about US$3/bbl which they stand to loose in case of full export parity pricing,” according to Emkay Global Financial Services.