The Hindu : National : Government to play major role in oil pricing

Online edition of India's National Newspaper
Friday, Nov 19, 2004

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National

Government to play major role in oil pricing

By Our Special Correspondent

NEW DELHI, NOV. 18. The United Progressive Alliance Government today conceded that it would play a major role in determining petroleum product prices in future, taking into account both social and commercial considerations.

While accepting this reality, the Petroleum Minister, Mani Shankar Aiyar, questioned whether the administered pricing mechanism (APM) had ever been dismantled by the National Democratic Alliance Government. "Was there ever an APM dismantling," he asked referring to the decision taken by the previous regime to eliminate administered pricing with effect from April 1, 2002.

"We have been far more honest in saying that the Government will control prices of cooking and auto fuels." He noted that only an announcement had been made to do away with the APM in 2002 but it was continued for kerosene and LPG. Even petrol and diesel prices were controlled from January 1 this year.

Speaking at the Economic Editors Conference, he said, in contrast, the UPA Government had taken a deliberate decision in June to revise prices. Later, a price band was formulated but was put in abeyance owing to the "aberrant" rise in world oil prices.

"Instead of pretending that the APM has been dismantled, we accept that in the present circumstances, the Government will have to have a major role in what fuel prices are," he said. He also gave an indication that the Government might step in to remove the "anomaly" of petrol prices being reduced while other products remained at existing levels. The Government had decided to link petrol price to import parity on November 4 which led to a decline in prices. Asked whether the system of carrying out a fortnightly review of prices by the oil companies would be continued, he said this might also be reviewed.

Mr. Aiyar said India could emerge as a significant exporter of oil products as the refinery capacity had considerably expanded. Private companies had already tapped the export market and some public sector companies had also begun to do so.

Before taking final decisions on expanding refinery capacities, he said a scientific assessment was needed about the demand for products such as kerosene. The Ministry had commissioned a study by the National Council of Applied Economic Research on the demand for kerosene, which was likely to be available by March next.

On the need for removing competition between the public sector oil companies, he said there was a need to have "synergy for energy." As many as eight options were being considered for restructuring the oil PSUs, including having one or two behemoths.

The aim was to achieve a strong and efficient public sector which could carry out its social obligations, he said.

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