The Hindu : National : Chidambaram, Aiyar discuss oil pricing formula

Online edition of India's National Newspaper
Monday, Jun 14, 2004

National

National

Chidambaram, Aiyar discuss oil pricing formula

By Sushma Ramachandran

NEW DELHI, JUNE 13. The proposed new oil pricing formula, envisaging a moderate price hike in petrol and diesel, extending the subsidy phase-out for kerosene and cooking gas and rationalisation of the duty structure on oil products, was hammered out here today at a high-level meeting between the Union Finance Minister, P. Chidambaram, and the Petroleum Minister, Mani Shankar Aiyar.

The next step is expected to be a meeting with the Prime Minister, Manmohan Singh, tomorrow so that some decisions can be taken by June 15, when the oil companies normally review pricing of products.

Official sources say the effort is to ensure that a small price hike is carried out by June 15 to give some relief to the oil companies which have been ailing from considerable erosion of profitability owing to high world prices of crude oil.

At the same time, the entire new pricing package is expected to be discussed with the coalition partners of the United Progressive Alliance before the proposals are submitted for Cabinet approval.

Sources say efforts will be made to ensure that the package appeals even to the Left parties, which have been opposing any price hike and have emphasised that consultations must be carried out before any decisions are taken.

One of the key elements of the package, however, is the continuation of subsidy on kerosene and cooking for five years rather than the earlier phase-out schedule of three years. The subsidy will continue till 2007 rather than being phased out in 2005.

In the case of petrol and diesel, the system of a price band within which oil companies can raise or reduce prices is being considered to give a measure of autonomy.

This will ensure that the oil companies can take these decisions on their own without seeking government approval unless there is a sharp increase or decrease in international prices and the revision goes beyond the proposed price band.

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