Free-market diesel price in 24 mths; only LPG, kerosene to get subsidy
The 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 R1.7 lakh crore. “In 24 months from now, everyone will pay market price for diesel, and we will have fuel subsidies only on LPG and kerosene,” a determined oil minister Veerappa Moily told FE. This is the first time the minister has said this categorically, setting at rest speculation after last week’s government directive to oil marketing companies (OMCs) on diesel pricing on whether it meant deregulation and abrogation of diesel subsidy.
The government has also firmed up a slew of reforms in the oil and gas sector to spur investments. India’s hydrocarbon industry has seen a dampening of investor sentiments in recent years due to various unresolved policy questions: mounting under-recoveries of OMCs and disputes over how oil and gas producers share their profits with the government, to name just two.
Ruing OMCs’ heavy borrowings of R1.5 lakh crore, the minister said: “We have $160 billion of crude imports a year which is 30% of all imports. Of this, $30 billion are under-recoveries which are making our oil companies bankrupt. Can this continue?” He reiterated that oil companies would calibrate the increase in diesel prices, adding that the delivery of LPG subsidy by way of direct cash transfer using the Aadhaar platform will start in 20 districts by mid-February. The minister said he would write to all CMs, asking them to cut taxes as far as possible to mitigate the impact of the phasing out of subsidy on diesel. “Much more than inflation, the macro-economic stability at stake today is what provided the context for the diesel price hike,” he said. Currently, central and state taxes account for 31% of the retail price of petrol in Delhi, and a little over 10% in the case of diesel. LPG does not attract taxes.
Moily said his ministry has just prepared a Cabinet note, endorsing the Rangarajan panel’s proposal that all future oil and gas contracts will be based on a simple revenue-sharing criterion, without regard to cost recovery.
The oil ministry, he said, was going to soon place before the newly set-up Cabinet Committee on Investments (CCI) proposals to fast-track approvals for over 20 offshore exploration blocks which have not