According to people privy to the development, the panel has suggested underrecoveries be calculated based on the traded parity pricing oil marketing companies currently use. Reportedly, it has also recommended diesel prices be increased by Rs 1 to Rs 1.5 a litre every month, against the current 50 paise monthly decontrol dose. "We were batting for this for a long time. It seems the committee has realised there wouldn't be too much of a difference between EPP (export parity pricing) and the current import parity pricing. We are waiting for the final report to be submitted in two-three weeks," said a senior petroleum ministry official close to the development.
The finance ministry had been batting for a change in the formula, as this was expected to save Rs 15,000-18,000 crore a year as it wouldn't include many costs such as that on transportation. Currently, subsidy is calculated in terms of import parity pricing - 80 per cent of the import parity price and 20 per cent of the export parity price. The finance ministry had mooted the new methodology to reduce underrecoveries, as 2.5 per cent Customs duty (according to the import parity pricing formula) was going as underrecoveries, without contributing to the exchequer. While the export parity price is the benchmark free-on-board price of the products, import parity pricing includes import duty and various expenses such as freight and insurance incurred to import products to Indian ports.
"Had it been implemented, oil marketing companies would have been hit badly on the benefit accruing from the import duty on products and also various notional expenses that go into the build-up of the refinery gate price," said Dhaval Joshi of Emkay Global Financial Services.
Meanwhile, underrecoveries on diesel for the first fortnight of October fell to Rs 10.51 a litre. For the second fortnight of September, this was Rs 14.5 a litre. In the case of kerosene and domestic liquefied petroleum gas (LPG), underrecoveries for October rose to Rs 38.32 a litre and Rs 532.86 a cylinder, respectively.
Effective Tuesday, oil marketing companies are incurring combined daily underrecoveries of about Rs 432 crore on the sale of diesel, kerosene and LPG, against Rs 486 crore in the previous fortnight.