The Hindu : National : Oil package likely by June 15

Online edition of India's National Newspaper
Thursday, Jun 10, 2004

National

National

Oil package likely by June 15

By Sushma Ramachandran

NEW DELHI, JUNE 9. To tackle the crisis posed by the soaring world oil prices, the Government is likely to announce by June 15 a comprehensive package of measures on pricing in the petroleum sector.

The Petroleum Minister, Mani Shankar Aiyar, and the Finance Minister, P. Chidambaram, plan to discuss the proposals with the Prime Minister, Manmohan Singh, on June 11.

The package is likely to be unveiled after detailed consultations with the coalition partners and the Left parties.

Speaking to reporters after a 45-minute meeting with Mr. Chidambaram today, Mr. Aiyar said he had a "fruitful and a very constructive meeting" and there was a consensus in their approach to deal with the crisis.

He said the Finance and Petroleum Ministries would carry out a "detailed toothcomb analysis" of the figures submitted on the crude oil price hikes in the world markets since January.

They were also expected to fine-tune the impact of each proposal since several products, such as petrol, diesel, cooking gas and kerosene, would have to be taken into account.

The indications are that the oil companies will be allowed to go ahead with a modest hike in the prices of petrol and diesel since they have been bearing sizable losses over the past five months.

Prices in the world markets began hardening in January but the companies were not allowed to raise the prices in view of the elections. The largest oil company, IOC, has suffered a loss of Rs. 504 crores on petrol and diesel and Rs. 1,639 crores on the kerosene and LPG fronts in the last three months.

The Petroleum Ministry is also believed to have suggested changes in the duty structure, such as shifting the excise and import duties from ad valorem — percentage terms — to specific rates.

This would ensure that the increase in world oil prices do not lead to higher duties on crude oil and thereby an impact on consumers. The creation of a price band for petrol and diesel has also been proposed within which oil companies would be free to revise the prices.

On cooking gas and kerosene, subsidised for the benefit the weaker sections, one of the proposals is to extend the phase-out of the subsidies, which are scheduled to end in 2005.

In other words, the subsidy would continue at least for another two years.

Since this would put pressure on the profitability of the oil companies, the Ministry has been discussing the creation of an Oil Price Stabilisation Fund to cushion the consumers from the impact of volatile international prices.

Though this sounds similar to the previous Oil Pool Account system, it is possible that this may be a more transparent mechanism that would come within the ambit of the general exchequer.

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