Parikh heads new committee to resolve issue of petroleum product pricing

Sources said Deora on Wednesday approved Parikh’s name as chairman of the expert group “to advise on a viable and sustainable system of pricing petroleum products” as announced by finance minister Pranab Mukherjee while presenting Budget 2009-10 on July 6.

The committee’s other members are: Indian Council for Research on International Economic Relations chairperson Isher Judge Ahluwalia,National Council of Applied Economic Research director-general Suman K Bery,and the secretaries of finance and petroleum.

The Group of Experts would have to work within the Congress manifesto of “providing petroleum products to the people at reasonable prices along with ensuring that the state-run oil marketing companies (OMCs) run profitably and efficiently,” said sources.

Last fiscal,the government took on the burden of the OMCs’ under-recoveries and issued oil bonds of Rs71,292 crore while the upstream state-run companies contributed Rs 32,000 crore in price discounts.

The committee is the third panel to be formed to address low consumer prices in the face of rising global oil prices that is causing revenue loss to Indian Oil,Bharat Petroleum and Hindustan Petroleum on sales of petrol,diesel,domestic LPG and kerosene at below cost price.

The recommendations of its predecessors — Rangarajan Committee and Chaturvedi Commission — did not find favour with the government and were not implemented as they suggested giving OMCs the freedom to fix monthly prices of petrol and diesel. They also called for kerosene subsidy to be restricted to below poverty line families with gradual removal of subsidy on LPG — mainly used by the above poverty line segment.

While Rangarajan wanted the government to discontinue the practice of taking money from upstream companies — ONGC,GAIL,and Oil India — to compensate OMCs,Chaturvedi suggested a Special Oil Tax on crude oil produced from fields awarded prior to the advent of the New Exploration Licensing Policy in 1999 to offset OMCs’ under-recoveries.

With Parikh at the helm,Deora may get support for his cost-plus pricing of natural gas as the IEP advocates that “in… a situation of shortage of gas,price of domestic gas and its allocation should be independently regulated on a cost-plus basis,including reasonable returns. Since gas supply is likely to increase in the next year or two,pricing of gas then,including from new discoveries,should be left to competitive markets”.