The Hindu : National : Panel for doing away with freight equalisation

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Saturday, Feb 18, 2006

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National

Panel for doing away with freight equalisation

Special Correspondent

Committee opposed to the Finance Ministry issuing oil bonds

NEW DELHI: The Rangarajan Committee on pricing and taxation of petroleum products has suggested doing away with freight equalisation, which will mean prices going up in some places and going down in other places.

If freight equalisation is not terminated, the required increase in petrol price in Delhi will be Rs. 1.67 a litre and Rs. 2.65 a litre in diesel, C. Rangarajan has said.

The committee, which submitted its report to Petroleum Minister Murli Deora on Friday, suggested a free float in retail prices of petrol and diesel after customs duty on both fuel is reduced to 7.5 per cent and that they be priced at trade parity at retail and refinery gate levels. It favoured discontinuation of the practice of asking upstream oil companies such as ONGC to provide discounts to the oil marketing companies to share the burden arising from being forced to sell LPG and kerosene below cost, be discontinued. Instead, it proposed that the present cess on domestic crude oil be raised to Rs. 4,800 per tonne from present Rs. 1,800 per tonne to meet that burden.

Decline in profits

It reiterated that should the Government decide not to implement any of the measures recommended, the burden thereof should be borne by the Government without shifting the same to the oil sector. This had resulted in the combined profits of oil marketing companies, which were healthy at Rs. 10,818 crore in 2003-04, declining to Rs. 7,193 crore in 2004-05 and getting totally eroded during the current year with losses of Rs 2,698 crore in the first nine months of 2005-06, the committee said.

Opposed to oil bonds

Mr. Rangarajan said the committee was opposed to the Finance Ministry issuing oil bonds to compensate for the Rs. 11,500 crore loss suffered by oil firms on sale of LPG and kerosene in current fiscal.

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