Public sector oil marketing companies like Indian Oil Corporation (IOC), Bharat Petroleum Corporation and Hindustan Petroleum Corporation (HPCL) would benefit if the government implements the recommendations of the Kirit Parikh committee on petroleum pricing. But consumer would bear the burden as the committee has recommended price hike. There would be not much impact on upstream companies like ONGC, Oil Indian Ltd and GAIL India which are already sharing OMCs? under-recoveries.
The committee has suggested maintaining the current methodology of calculating OMCs? under-recoveries on retail sale of household LPG and PDS kerosene on the import parity basis. That means the OMCs will continue to enjoy the possibility of reaping windfall gains in international as prices of these products rise proportionately more than crude oil prices. The committee has made the recommendation on the ground that the country remains a net importer of these two products.
Upstream companies like ONGC and OIL had made a strong case before the committee for bringing refineries under the subsidy burden-sharing dispensation. They argued that because of the import parity pricing methodology, refineries stand to gain disproportionately in case prices of petroleum products in the global market rise more sharply than that of crude oil.
The committee has also recommended that the government should reimburse the OMCs? under-recoveries in cash and not through issuance of oil bonds. The government has decided to compensate the OMCs? under-recoveries from the current fiscal in cash.
The OMCs cannot use the oil bonds as collateral for borrowing as they lack the SLR-status. As a result, the OMCs were selling oil bonds to banks at a discount. With the government borrowing heavily in recent years, there were not many takers for these oil bonds. The committee has rejected the upstream firms? suggestion that they should be kept out of the subsidy burden sharing regime. Upstream firms had said that in lieu of that, the government might as well impose windfall gain tax on their proceeds from the sale of crude oil in case global prices rise beyond $60 a barrel.
?We are not recommending a windfall profit tax since MOPNG ought to have flexibility in mopping up incremental incomes of ONGC and OIL for the purpose of meeting a part of the under-recoveries of OMCs on sale of domestic LPG and PDS kerosene,? the committee has argued.
The committee has recommended ?The next step to finance under-recoveries of OMCs would be by way of mopping up part of the incremental income of ONGC and Oil India by way of price discounts extended to the OMCs. MOPNG has been administering this method. It provides flexibility to the Government in balancing the needs of ONGC and Oil India and the obligation to finance the under-recoveries of OMCs. Therefore, the present arrangement may be continued and incremental incomes of ONGC and Oil India can be mopped up by MOPNG in a calibrated manner.?