Centre may go for partial rollback of bulk diesel prices

Cabinet to take up higher dose of diesel price hike soon

The government is planning a partial rollback of bulk diesel pricing, petroleum secretary Vivek Rae said today. He confirmed that the suggestions by Kirit Parikh panel for a higher dose of monthly diesel price would also be taken up before the Cabinet soon.

The government had gone for dual pricing system for bulk and retail customers last year. Since then, the sales of bulk diesel had gone down from 18% of the overall diesel sales to 10%. Currently, all state transport utilities are depending on retail outlets, leaving railways and defence as the only bulk consumers in the country.

“We are circulating the Kirit Parikh report for inter-ministerial consultation. The suggestions for higher dose of diesel price would be a part of it, while our focus for Cabinet clearance would be related to subsidy-sharing,” Rae said on the sidelines of CII summit, on run up to Petrotech 2014. He added that the focus would be to ensure that upstream companies get about $65 a barrel on sale of crude oil, which is currently in the range of $40-42 a barrel.

“This would mean that we would be able to initiate more exploration activities. While we are buying crude oil at $110 a barrel, domestic companies should get atleast $65 a barrel for invest in future exploration activities,” he added

The move would be a huge relief for upstream oil companies like Oil and Natural Gas Corporation (ONGC) and Oil India, while the Parikh panel also suggested to keep GAIL India out of subsidy sharing mechanism.

The panel had also suggested Rs 5 hike on diesel prices, Rs 250 a cylinder increase in the price of domestic cooking gas and Rs 4 a litre in kerosene oil, with immediate effect.

One of the suggestions to be put before the Cabinet would be that upstream companies must be given an assured $65 a barrel on supply to oil-marketing companies (OMCs). Beyond $65 and up to $100 a barrel, they would have to offer an 85% discount. If the oil price went past $100, the discount would be 90% on what they earned above $65, the official said.

The Parikh committee had suggested a slab-based formula for upstream share in subsidy. It had said the upstream contribution should be 40% if crude oil prices were below $80 a barrel; 40% if these were between $80-120 a barrel; and adding 25 basis points to the share for each $1 a barrel increase beyond $80 a barrel. If prices were above $120 a barrel, the upstream contribution was suggested at half the crude oil price.

In the current financial year, the OMCs are expected to incur a revenue shortfall of around Rs 1,43,800 crore (Rs 1,438 billion) on sale of kerosene, cooking gas and diesel.