Parikh panel for Rs 5 hike in diesel prices

Also wants kerosene to be made costlier by Rs 4 a litre and cooking gas by Rs 250 a cylinder to cut fuel subsidy bill

The Kirit Parikh committee, asked to revisit the pricing methodology of petroleum products, has recommended to the government an increase of Rs 5 a litre in diesel, Rs 250 a cylinder in LPG (cooking gas) and Rs 4 a litre in kerosene with immediate effect. The suggestions are likely to be considered at the cabinet by December.

It also suggested a cap on diesel subsidy by oil marketing companies (OMCs) at Rs 6 a litre, which along with the rise it recommends would collectively save at least Rs 40,000 crore of the government’s subsidy burden.

On the tussle over export parity pricing for OMCs between the finance and petroleum ministries, the panel recommended against any change in the present trade parity pricing formula, despite a note on its stand from the finance ministry.

At present, the prices of petrol and diesel are calculated by taking into account 2.5 per cent Customs duty to the refinery gate price, along with freight rates. The finance ministry wanted to save Rs 13,000 crore on underrecovery every year. “We found that there is hardly any difference between EPP and TPP. Hence, it was suggested that since the government has already decided to eventually free the diesel price, there is no need to tinker with the existing pricing formula, which, even if modified, will not solve the problem of mounting under-recoveries incurred on sales of controlled products, mainly due to high international crude prices and depreciation of Indian rupee,” Parikh said.

The committee, headed by former planning commission member Parikh, had P K Singh, joint secretary from the petroleum ministry; S Garg, joint secretary from the finance ministry; IIM Ahmedabad professor S K Barua and petroleum ministry joint secretary R K Singh. According to petroleum ministry sources, the recommendations of the committee would be taken up before the cabinet by the end of November or early December.

While pinning hopes on the Direct Benefits Transfer programme for transfer of susbsidies, the committee suggested that the price of subsidised domestic LPG be raised by Rs 250 a cylinder immediately and the balance subsidy be phased out over the next two years through a gradual price increase.

The limit for subsidised cylinders be reduced from the present nine to six cylinders per annum to each household and the DBTL scheme be restricted to identified families based on an exclusion criteria

Meanwhile, it has suggested a fresh formula for upstream companies such as Oil and Natural Gas Corporation and Oil India under the New Exploration Licensing Policy regime on a slab-based discount scheme. If the crude oil price is below $80 a barrel, the upstream contribution would be 40 per cent; between $80-120 per barrel, it would be 40 per cent, adding 0.25 per cent for each $1 barrel increase beyond $80 a barrel. If prices are above $120 a barrel, the upstream contribution was suggested at half the crude price.

Amid the buzz about GAIL getting out of the subsidy burden, the panel suggested with the reduction in availability of APM gas, GAIL’s contribution should not exceed the gross profit made on sale of LPG, after allowing for a reasonable profit to be retained.

PANEL PROPOSALS

FUEL PRICING

• Trade parity pricing system good enough. Export parity system, suggested by finance ministry, to not reduce underrecoveries much

DIESEL

• Cap subsidy on diesel at Rs 6 a litre, freeing diesel beyond this cap

KEROSENE

• Fast-track direct transfer of subsidy to below poverty line families and complete it within two years
• Increase kerosene price by Rs 4 a litre immediately, revise PDS kerosene price to keep it in line with growth in per capita agriculture GDP

DOMESTIC LPG

• Cap subsidised cylinders to each household at 6 from 9 now; restrict DBTL scheme to identified families based on an exclusion criteria
• Increase price of subsidised domestic LPG by Rs 250 a cylinder immediately; phase out balance subsidy in two years
• Actively promote piped natural gas to urban homes

UPSTREAM CONTRIBUTION

• GAIL’s contribution to not exceed gross profit made on sale of LPG (after allowing a reasonable profit amount to be retained by GAIL)