Negative Excise Likely To Replace Petro Subsidies
With the dismantling of the administered pricing mechanism (APM) and the deregulation of the oil sector to be implemented from April 1, 2002, the finance ministry is likely to replace subsidies provided to the oil sector with a regime of negative excise duties and directed marketing regulations on the lines of norms prevailing in the civil aviation sector.
"This viewpoint has, for all practical purposes, been accepted at the highest level and unless a better solution comes up, this would be adopted," said top oil sector sources.
The finance ministry was in-principle against subsidies to the oil sector but was sensitive to the need to ensure availability of oil products in every part of the country.
Products sold in the backward or hilly areas, some of which are eligible for subsidies today, may attract negative excise duties.
This would enable production and marketing companies to cross-subsidise sales through an internal mechanism rather than depending on the government to hand out subsidies.
The returns to the companies would remain the same while the government would thereby ensure a level playing field in the oil sector.
Regulations on directed marketing were also likely to ensure product acccessibility at all corners of the country.
Like the norms in the civil aviation sector, which compel airlines operating inter-metro flights to fly to smaller airports as well, oil companies would be required to match the number of pumps opened in urban areas or major highways with pumps in backward or difficult areas or minor roads according to a specific formula.
Some flexibility may be provided to allow companies to swap credits for such sales across areas.
"As long as companies ensure product availability and comply with the prescribed percentage of sales in non-urban areas and major roads, the government may not choose to be rigid about which company is selling how much where. After all, different companies have different regional strangths," sources said.
With IBP Ltd already sold off by the government to Indian Oil Corporation (IOC), a corporate entity though also under government ownership, and the imminent disinvestment of Hindustan Petroleum Ltd (HPCL) and Bharat Petroleum Ltd (BPCL) to private sector companies, these steps would be crucial to ensure that oil products were available across the country and on all routes.