Plan panel says energy subsidy not sustainable

New Delhi, Aug 30 | Updated: Aug 31 2006, 05:30am hrs
Advocating for a transparent pricing mechanism, the Planning Commission has cautioned that in the long term it will be virtually impossible to subsidise petroleum products and consumers will have to bear a part of the burden of the mounting crude oil prices.

Releasing the report on Integrated Energy Policy (IEP) on Wednesday, Planning Commission deputy chairman Montek Singh Ahluwalia said, If international crude oil prices continue to rise, subsidies will be unsustainable. Consumers by and large do not realise how much they are subsidised. There is a need to create awareness, planning Commission deputy chairman montek singh ahluwalia said.

Asked if a hike in oil prices was feasible in the present coalition structure of the UPA government, he said, our job is to indicate and we are doing it.

Stressing on the need for a proper pricing mechanism is required, Mr Ahluwalia said oil companies can not be forced to bear the brunt of subsidies in the long run. Advisor, Energy, Planning Commission and chairman of the committee on IEP Kirit N Parekh also echoed the same sentiments. He said there is a need to rationalise taxes on petroleum products. Trade parity pricing mechanism should be introduced.

The plan panel has also recommended greater reforms in the power sector including reduction in transmission and distribution losses besides encouraging private sector participation in the sector.

Oiling the pathway

Ahluwalia said, If international crude oil prices continue to rise, subsidies will be unsustainable
Consumers by and large do not realise how much they are subsidised. There is a need to create awareness
There is a need to rationalise taxes on petroleum products. Trade partity pricing mechanism should be introduced
The report observed a lack of level playing field between central public sector companies and private firms

Admitting that privatisation of distribution utilities may not be politically possible in all states, Mr Parikhs report said agricultural consumers must at least be given separate feeders and the subsidy provided on account of free power must be borne by the state government.

The report also observed a lack of level playing field between central public sector companies and private firms. Central PSUs get an assured return on equity of 14-16% while private generation companies did not have the comfort of payment security mechanism and state power utilities did not get assured post-tax returns, it said.

Power ministry should facilitate large-scale capacity addition of 20,000 mw or more, the report said, adding for faster execution of projects, bulk orders could be given to equipment suppliers, while at the same time enhancing domestic manufacturing and engineering capacities.

Estimating a capacity addition requirement of 600,000 mw in the next 25 years, the report said there was no danger of pre-empting future competition or limiting technology options by placing bulk orders.