Centre may keep some control over post-APM
petro market

Anupama Airy

New Delhi, Nov 27: The government is planning to retain certain controls in the petroleum market even after dismantling administered
pricing mechanism (APM) from April 1.

The ministries of petroleum and finance have proposed that if international crude oil prices cross the $28-per barrel mark, the government will intervene to bring down the impact of this on domestic consumer prices of diesel and petrol in the post-APM regime.

However, no government intervention would be required as long as crude oil prices are in the declared band of $22-28 a barrel. “The government will intervene only in the cases of extreme volatilities,” they said.

Top official sources told The Financial Express that following a series of recent high-level meetings between the finance and the petroleum ministries on dismantling APM, a mechanism for government intervention in the de-regulated scenario has been worked out.

Towards this, it is proposed that a ‘Price Stabilisation Fund’ be created with a corpus of Rs 10,000 crore (built up in due course of time). The fund would be managed by the petroleum ministry and annual inflows to this fund will come from a cess to be levied on the indigenous crude oil production.

“The advantage of this mechanism is that the revenues of the government from the petroleum sector would get affected only marginally. This option may work well in India as 30 per cent of the country’s crude oil requirement is met from indigenous crude oil produced by Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL),” officials said.

Officials disclosed that yet another view which came up for discussion, during the meetings, was that volatilities could perhaps be best handled by adjusting the excise duties depending on the prevailing oil prices in the international oil market.

“The advantage of this mechanism is that it is easy to administer and does not require creation of any specific fund. However, the main disadvantage of this mechanism is that when the oil prices go up substantially, government revenues from the petroleum sector due to cuts in taxes/duties, decrease drastically,” sources said.

Countries like Malaysia have been able to successfully maintain the domestic prices through this kind of a mechanism. This, officials said is mainly because Malaysia is a net exporter of oil and at the time of high international oil prices, it makes up the loss of revenue by higher revenue earning from the export of crude oil.

“However, in the Indian context, adoption of this mechanism would put the domestic revenue under tremendous pressure for the reason that excise revenue from petroleum sector would need to be foregone at a time when the requirement of subsidies on kerosene and domestic LPG from the budget would be higher,” a senior government official said.