The Cabinet secretariat has asked the petroleum ministry to prepare a road map with deadlines for moving towards a market-determined pricing of automotive fuels.
It has also asked the ministry to indicate a timeline for removing or reducing the investment requirement of Rs 2,000 crore in the petroleum sector for entering retailing of auto fuels. The sector regulator can easily ensure that fly-by-night operators do not enter the retail sector even without such an investment hurdle.
Detailed discussions on this issue took place recently at a meeting headed by the Cabinet secretary on July 5, with the ministry and the Planning Commission. It was also stressed that subsidies on sensitive products like LPG and kerosene should benefit the poor and funded directly through the Budget.
The Planning Commission brass felt that the current situation was not conducive to competition because the government was compensating only state-owned oil companies (IOC, BPCL and HPCL) for under-recoveries based on the import parity pricing, while the private sector was not being given damages. As the government is currently exercising control by declaring price caps, it was proposed in the meeting that oil firms be allowed full competition at the refinery gate and retail level within declared price caps. Such competition, as per the Planning Commission, will lead to lower prices and to limiting and ultimately eliminating government support on auto fuels. ?If such price caps entail any compensation to national oil companies (IOC, BPCL and HPCL) through pricing of crude oil or otherwise, then such benefit should be made available evenly to both public and private sector players,? the minutes of the meeting stated, quoting a Planning Commission official.