Friday EGoM to mull fuel deregulation

The ministerial group on fuel pricing chaired by finance minister Pranab Mukherjee will meet here on Friday to explore…

The ministerial group on fuel pricing chaired by finance minister Pranab Mukherjee will meet here on Friday to explore various possibilities of price revision and de-regulation of fuel. A decision, however, looks unlikely this week in the backdrop of return of double digit inflation and strong opposition from railway minister Mamata Banerjee.

Petroleum minister Murli Deora told reporters here that the eight-member empowered group of ministers (EGoM) would meet on Friday. To a question on whether the meeting is for a one time revision in prices or for complete de-regulation of petrol and kerosene as suggested by an expert panel, Deora said, ?That depends on the ministerial group.? Separately, petroleum secretary S Sundareshan said, ?I cannot comment on political decision-making?.

At the last meeting of the ministerial group, the petroleum ministry made a presentation based on the Kirit Parikh committee?s report that had proposed that retailers like IOC, HPCL and BPCL be given total freedom on the pricing of petrol and diesel. The report also recommended a price increase of Rs 6 per litre on kerosene and a Rs 100 a litre increase on LPG.

A source close to Banerjee told FE that the ?aam aadmi?s? government should not increase poor people?s hardships by raising fuel prices. Also, provisional wholesale price based inflation for May, which has touched 10.16%, is likely to make the ministers think several times before deciding on even a token price increase.

The Trinamool Congress (TMC) leader (Mamata) is not in favour of all this. Originally, the UPA government was for the aam admi. Higher fuel price is a tax on the common man. If you are for the common man, how can you tax them? Besides, villagers are increasingly using LPG in place of other traditional fuel. A price revision on LPG will hit them seriously,? a senior TMC functionary told FE.

To lower the impact of any possible price increase, the petroleum minister has asked state chief ministers to move away from the value added tax that is levied as a percentage of the retail price of fuel. Instead, Deora wants states to levy taxes at a specific rate in rupee terms, which would not go up when fuel prices go up.

Now, crude oil producers ONGC and OIL India and natural gas distributor Gail India bear the burden of selling petrol and kerosene at subsidised prices to the poor. In 2009-10, they provided Rs.14,430 crore to the retailers IOC, HPCL and BPCL. The union government on the other hand, gives subsidies to the retailers to sell kerosene and LPG cheaper. Towards, this, the Centre paid Rs 26,000 crore last fiscal.

The government wants to seize the opportunity to de-regulate prices so that both the crude producers and fuel retailers are better placed to make the much needed investments in their expansion to meet the energy requirement of the fastest growing free-market democracy in the world. Now India import 70% of its crude oil requirement and wants to step up domestic production capability.

In global markets, crude oil, which ruled around $ 64 a barrel on May 25, has shot up to $77-78 a barrel on Monday. If European economies come out of the sovereign debt crisis sooner than expected, oil price could go up further. That would force higher oil subsidy burden on the Indian government and its upstream oil companies. Last fiscal, retailers IOC, HPCL and BPCL realised Rs.46,051 crore less than what they would have got had they been allowed to recoup their full costs. Petroleum secretary S Sundareshan had recently told FE that crude oil price at $60-70 a barrel was comfortable and beyond $75 was unmanageable.

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First published on: 23-06-2010 at 23:11 IST