Panel pill to tame fuel subsidy
Government subsidies on fuel could be maintained at a “bearable” level of Rs 20,000 crore per year irrespective of the price of crude in the international markets, if the government implements the Kirit Parikh panel report.
The panel said this could be done through free pricing of petrol and diesel, periodically raising prices of cooking gas cylinders (LPG) and kerosene, reducing the allocation of kerosene and directing ONGC Ltd and Oil India Ltd to part with some of their earnings when crude price goes above a certain level.
“If petrol and diesel are allowed free-market pricing, kerosene and domestic LPG prices are raised periodically… the subsidy burden of the government would come down substantially,” Kirit S. Parikh, chairman of the committee on sustainable pricing of petroleum products, said after submitting its report to petroleum minister Murli Deora.
The committee also suggested that when the crude oil price crossed $60 per barrel, state-owned Oil and Natural Gas Corporation Ltd (ONGC) and Oil India could be asked to part with a proportion of their excess earnings. This is only on crude produced from their nomination blocks.
Parikh said even if the price of crude changed from $70 per barrel to $140 per barrel “the burden on the budget of the government would remain stable at about Rs 20,000 crore, and that I think is a bearable burden for subsidy”.
He said “the government should compensate the gap by providing cash subsidy from the budget. The oil firms marketing PDS kerosene and domestic LPG should be compensated fully for their under-recoveries.”
N.R. Bhanumurthy of the National Institute of Public Finance and Policy said, “The recommendations should be the long-term objectives of the government, but given the political economy situation, it appears unlikely that they would be fully implemented in the medium term.”
In the sharing of revenue, if crude moved beyond $60 per barrel, the report suggested the levy of a special oil tax on ONGC and OIL. Parikh said such a levy should be restricted only on blocks given on a nomination basis.
According to the Parikh report, when crude price rules in the range of $60-70 per barrel, 20 per cent of the excess price over $60 should be the taxable rate.
When crude is in the range of $70-80 per barrel, the rate should be 40 per cent of the excess price over $70.
For crude at $80-90, the recommended levy is 60 per cent above $80. Beyond $90 per barrel, it is 80 per cent above $90.
In its presentation before the committee, ONGC had stated that a crude price hike led to an increase in the cost of inputs such as field service material and equipment. “(Therefore) SOT rate should be calibrated so that ONGC is able to retain some portion of increase in price to cover rise in costs.”
Till last year, upstream firms such as ONGC were asked to bear one-third of the total revenue loss suffered by the state-owned oil marketing companies for selling fuel below cost.
This year, they have been mandated to bear all of the revenue loss for selling petrol and diesel below cost.
ONGC has in the six years since 2003-04 doled out Rs 86,005 crore in fuel subsidies; this year it has already paid over Rs 5,000 crore.
In 2008, the B.K. Chaturvedi committee had recommended that the special oil tax should kick in at $75 per barrel, but its report had been not implemented so far.
The Parikh committee is the third panel constituted by the government on oil pricing. The recommendations of the previous C. Rangarajan and Chaturvedi committees have not been fully implemented.
Showing posts with label oil. Show all posts
Showing posts with label oil. Show all posts
Feb 4, 2010
Petro potion tickles & rattles
- Radical proposals to raise prices leave govt with unenviable option
The Manmohan Singh government has been served a chalice of petroleum reforms too bitter to swallow politically but irresistible economically.
Transportation and kitchen fuel prices could rise if the government marshals courage to accept the sweeping recommendations made by a committee that suggested market-determined pricing of petrol and diesel, an increase of Rs 100 per cooking gas cylinder and a Rs 6-per-litre hike in the price of kerosene sold through ration shops.
“The current petroleum product pricing of the government is not sustainable,” said Kirit Parikh, chairman of the committee, after submitting the report today to petroleum minister Murli Deora.
Deora later said the Parikh report would be placed before the cabinet for discussion within a week. “We are very keen not just to discuss (the report) but also see what can be done for consumers and the government,” Deora added.
Parikh believes that the government, which is under pressure to put a lid on rising subsidies, will be receptive to the radical proposals. (See chart)
“This is the best time to free prices of petrol and diesel. The price increases will be very low now…. You ought not to wait for crude oil prices to touch $120 a barrel,” he added. Crude oil prices are currently hovering around $76 a barrel.
Industry sources said the price of petrol could go up by Rs 4.70 per litre and diesel by Rs 2.30 per litre if the government grants pricing freedom to the state-owned oil marketing companies like Indian Oil Corporation.
The economics may be right but the proposals have come at a time the government is battling price rise in a year elections will be held in Bihar.
Analysts expect political pragmatism to override economic wisdom, prompting the government to adopt only a few token measures.
“The government has to bite the bullet sometime but the quantum of the increase may not be as much as suggested by the panel,” said D.K. Joshi, economist with rating agency Crisil.
Political parties said they would oppose any move that raised the prices of essential commodities.
“We are confident that the government would keep the larger picture in mind while arriving at an appropriate decision,” said Congress spokesperson Manish Tiwari.
The government, which rode to power on the populist aam admi plank and the slogan of inclusive growth, will be hard pressed to raise the price of kerosene sold through the ration shops which hasn’t been changed since March 2002.
The committee felt that a price of Rs 15 per litre was justified as 35 per cent of kerosene sold through the ration shops was being diverted for unauthorised purposes including adulteration of diesel.
The committee believed that an inflated fuel bill for motorists – estimated at a maximum of Rs 1,000 a month for car owners based on an all-India average of driving distances and assuming global crude oil prices surge to $120 a barrel from current levels – is entirely bearable. People who live in the metros may have to pay somewhat more.
The more realistic medium-term assumption is that car owners in metros should expect a Rs 7 per litre hike in petrol prices, which would translate into a little over Rs 600 increase in monthly petrol bills if crude oil prices stay under $80 a barrel.
In the case of two-wheeler owners, the committee says the additional increase will be only Rs 50 a month (on the basis of an all-India average of driving distances and fuel efficiency standards) or Rs 80 a month in metros.
In the unlikely event that crude prices surge to $ 120 a barrel, the two-wheeler owners will have to pay just Rs 160 more every month – which it reckons isn’t going to be hard on the pocket.
The committee also said that there was no social reason to subsidise gas-guzzling sports utility vehicles (SUVs) and, therefore, proposed diesel prices should also be market determined.
- Radical proposals to raise prices leave govt with unenviable option
The Manmohan Singh government has been served a chalice of petroleum reforms too bitter to swallow politically but irresistible economically.
Transportation and kitchen fuel prices could rise if the government marshals courage to accept the sweeping recommendations made by a committee that suggested market-determined pricing of petrol and diesel, an increase of Rs 100 per cooking gas cylinder and a Rs 6-per-litre hike in the price of kerosene sold through ration shops.
“The current petroleum product pricing of the government is not sustainable,” said Kirit Parikh, chairman of the committee, after submitting the report today to petroleum minister Murli Deora.
Deora later said the Parikh report would be placed before the cabinet for discussion within a week. “We are very keen not just to discuss (the report) but also see what can be done for consumers and the government,” Deora added.
Parikh believes that the government, which is under pressure to put a lid on rising subsidies, will be receptive to the radical proposals. (See chart)
“This is the best time to free prices of petrol and diesel. The price increases will be very low now…. You ought not to wait for crude oil prices to touch $120 a barrel,” he added. Crude oil prices are currently hovering around $76 a barrel.
Industry sources said the price of petrol could go up by Rs 4.70 per litre and diesel by Rs 2.30 per litre if the government grants pricing freedom to the state-owned oil marketing companies like Indian Oil Corporation.
The economics may be right but the proposals have come at a time the government is battling price rise in a year elections will be held in Bihar.
Analysts expect political pragmatism to override economic wisdom, prompting the government to adopt only a few token measures.
“The government has to bite the bullet sometime but the quantum of the increase may not be as much as suggested by the panel,” said D.K. Joshi, economist with rating agency Crisil.
Political parties said they would oppose any move that raised the prices of essential commodities.
“We are confident that the government would keep the larger picture in mind while arriving at an appropriate decision,” said Congress spokesperson Manish Tiwari.
The government, which rode to power on the populist aam admi plank and the slogan of inclusive growth, will be hard pressed to raise the price of kerosene sold through the ration shops which hasn’t been changed since March 2002.
The committee felt that a price of Rs 15 per litre was justified as 35 per cent of kerosene sold through the ration shops was being diverted for unauthorised purposes including adulteration of diesel.
The committee believed that an inflated fuel bill for motorists – estimated at a maximum of Rs 1,000 a month for car owners based on an all-India average of driving distances and assuming global crude oil prices surge to $120 a barrel from current levels – is entirely bearable. People who live in the metros may have to pay somewhat more.
The more realistic medium-term assumption is that car owners in metros should expect a Rs 7 per litre hike in petrol prices, which would translate into a little over Rs 600 increase in monthly petrol bills if crude oil prices stay under $80 a barrel.
In the case of two-wheeler owners, the committee says the additional increase will be only Rs 50 a month (on the basis of an all-India average of driving distances and fuel efficiency standards) or Rs 80 a month in metros.
In the unlikely event that crude prices surge to $ 120 a barrel, the two-wheeler owners will have to pay just Rs 160 more every month – which it reckons isn’t going to be hard on the pocket.
The committee also said that there was no social reason to subsidise gas-guzzling sports utility vehicles (SUVs) and, therefore, proposed diesel prices should also be market determined.
Feb 3, 2010
Kitchen comfort under threat
Consumers may get only six subsidised LPG cylinders every year and pay the market rate for additional purchases in that year.
This recommendation, which may lead to less use of this ubiquitous device in Indian kitchens, could find its way in the report of the Kirit S. Parikh committee on sustainable pricing of petroleum products. The panel is likely to submit its report tomorrow.
If the recommendation goes through, consumers would have to pay around Rs 600 to Rs 650 per cylinder, almost double the amount they pay now.
Sources said the panel which met today to finalise its recommendations favoured market-linked pricing of petroleum products and subsidies only for the needy rather than the general population.
They said a final call on the recommendations of the report would be taken by Prime Minister Manmohan Singh after considering other factors such as inflation and political concerns.
Officials said the huge gap between commercial cylinders, which cost Rs 1,000-1,200 per 19kg cylinder, and the domestic ones often led to diversion of the later for commercial purposes.
The last Economic Survey had stated that the subsidy regime for LPG and kerosene had to be reformed so that “all the needy get the intended benefit... limit LPG subsidy to a maximum of 6-8 cylinders per annum per household”.
The B.K. Chaturvedi committee report submitted in 2008 had made a similar suggestion. But the Union government sat tight on the report as it was in an election mode then.
According to sources, the time is right for the government to limit subsidy — firstly, the fiscal deficit in this financial year is seen at Rs 4 lakh crore, which needs to be redressed and second, the government has a clear mandate for the next four years, which should help it to push through the unpopular proposal.
The Chaturvedi panel had said that the subsidy should be brought down to zero in four years. It said six cylinders should be subsidised in the first year, four in the second, two in the third and none in the fourth year.
Households should be encouraged to subscribe to the piped city gas network, wherever available.
For BPL families, the LPG subsidy as well as that for kerosene should be provided either through smart cards or through direct cash transfers, the panel said.
Oil ministry officials said subsidised prices of LPG and kerosene were “greatly misaligned… leading to huge uneconomic use and unintended benefits to certain classes of consumers”.
Kerosene and cooking gas cylinders comprise the lion’s share of revenue losses suffered by the three state-owned oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum.
Petroleum secretary S. Sundareshan said in the current financial year the three state-owned retailers were estimated to lose around Rs 31,000 crore on cooking fuels and around Rs 10,000 crore on petrol and diesel.
Consumers may get only six subsidised LPG cylinders every year and pay the market rate for additional purchases in that year.
This recommendation, which may lead to less use of this ubiquitous device in Indian kitchens, could find its way in the report of the Kirit S. Parikh committee on sustainable pricing of petroleum products. The panel is likely to submit its report tomorrow.
If the recommendation goes through, consumers would have to pay around Rs 600 to Rs 650 per cylinder, almost double the amount they pay now.
Sources said the panel which met today to finalise its recommendations favoured market-linked pricing of petroleum products and subsidies only for the needy rather than the general population.
They said a final call on the recommendations of the report would be taken by Prime Minister Manmohan Singh after considering other factors such as inflation and political concerns.
Officials said the huge gap between commercial cylinders, which cost Rs 1,000-1,200 per 19kg cylinder, and the domestic ones often led to diversion of the later for commercial purposes.
The last Economic Survey had stated that the subsidy regime for LPG and kerosene had to be reformed so that “all the needy get the intended benefit... limit LPG subsidy to a maximum of 6-8 cylinders per annum per household”.
The B.K. Chaturvedi committee report submitted in 2008 had made a similar suggestion. But the Union government sat tight on the report as it was in an election mode then.
According to sources, the time is right for the government to limit subsidy — firstly, the fiscal deficit in this financial year is seen at Rs 4 lakh crore, which needs to be redressed and second, the government has a clear mandate for the next four years, which should help it to push through the unpopular proposal.
The Chaturvedi panel had said that the subsidy should be brought down to zero in four years. It said six cylinders should be subsidised in the first year, four in the second, two in the third and none in the fourth year.
Households should be encouraged to subscribe to the piped city gas network, wherever available.
For BPL families, the LPG subsidy as well as that for kerosene should be provided either through smart cards or through direct cash transfers, the panel said.
Oil ministry officials said subsidised prices of LPG and kerosene were “greatly misaligned… leading to huge uneconomic use and unintended benefits to certain classes of consumers”.
Kerosene and cooking gas cylinders comprise the lion’s share of revenue losses suffered by the three state-owned oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum.
Petroleum secretary S. Sundareshan said in the current financial year the three state-owned retailers were estimated to lose around Rs 31,000 crore on cooking fuels and around Rs 10,000 crore on petrol and diesel.
Mar 22, 2008
Indian Oil
Indian Oil to hire for exploration
R. SURYAMURTHY
New Delhi, Jan. 7: State-run Indian Oil Corporation, which is planning to venture into domestic oil and gas exploration and production, is increasing its staff strength.
Sources said the company planned to recruit about 50 people at all levels to foray into the exploration and production (E&P) business.
The company plans to bid for small blocks under the seventh Nelp (New Exploration Licensing Policy) round.
Officials said the small blocks would offer the IOC an opportunity to participate on its own as the company had not managed to acquire assets as an operator due to the technical criterion prescribed.
R. SURYAMURTHY
New Delhi, Jan. 7: State-run Indian Oil Corporation, which is planning to venture into domestic oil and gas exploration and production, is increasing its staff strength.
Sources said the company planned to recruit about 50 people at all levels to foray into the exploration and production (E&P) business.
The company plans to bid for small blocks under the seventh Nelp (New Exploration Licensing Policy) round.
Officials said the small blocks would offer the IOC an opportunity to participate on its own as the company had not managed to acquire assets as an operator due to the technical criterion prescribed.
Fuel
Crude surge fuels bailout move
R. SURYAMURTHY
Deora: Action time
New Delhi, Nov.1: As global crude prices simmered near the $100-per-barrel-mark, petroleum minister Murli Deora today held separate meetings with Prime Minister Manmohan Singh and finance minister P. Chidambaram over a fresh bailout package for oil marketing PSUs.
In the meetings, Deora sought equitable sharing of the crude burden among the government, the oil marketing companies and consumers.
In tandem with the global price, the Indian basket of crude has shot up to $84.31 per barrel. The Indian crude is a mix of Dubai and Brent crude in the ratio of 61:39.
R. SURYAMURTHY
Deora: Action time
New Delhi, Nov.1: As global crude prices simmered near the $100-per-barrel-mark, petroleum minister Murli Deora today held separate meetings with Prime Minister Manmohan Singh and finance minister P. Chidambaram over a fresh bailout package for oil marketing PSUs.
In the meetings, Deora sought equitable sharing of the crude burden among the government, the oil marketing companies and consumers.
In tandem with the global price, the Indian basket of crude has shot up to $84.31 per barrel. The Indian crude is a mix of Dubai and Brent crude in the ratio of 61:39.
Hunt
Centre warms up to oil hunt drill
R. SURYAMURTHY
Under the hammer
New Delhi, Dec. 2: The government is likely to launch a fresh round of oil-and-gas-block auctions after the winter session of Parliament that ends on December 7.
These auctions are part of the government’s new exploration and licence policy, and the upcoming auctions are the seventh in the series.
The auctions will be the largest-ever with 60 oil and gas blocks on sale. Of these blocks, 30 are onshore, 15 are shallow water and 15 deep water and ultra-deep water blocks.
R. SURYAMURTHY
Under the hammer
New Delhi, Dec. 2: The government is likely to launch a fresh round of oil-and-gas-block auctions after the winter session of Parliament that ends on December 7.
These auctions are part of the government’s new exploration and licence policy, and the upcoming auctions are the seventh in the series.
The auctions will be the largest-ever with 60 oil and gas blocks on sale. Of these blocks, 30 are onshore, 15 are shallow water and 15 deep water and ultra-deep water blocks.
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