Parikh panel says no to export parity for OMCs

Thus, puts an end to battle between finance ministry and petroleum ministry

In what appeared an end to the tussle over export-parity pricing for oil-marketing companies between the finance ministry and the petroleum ministry, the Kirit Parikh committee on Saturday ruled out any change in the way of calculating underrecoveries on the basis of traded-parity pricing.

The report is set to be given to the government in the week after next, while the finance ministry will file a note defending its stance. While the export-parity price is the benchmark free-on-board price of products, import-parity pricing includes import duty and various expenses, such as freight and insurance incurred to import products to India.

“The report is in favour of the petroleum ministry’s stand of continuing with the current form of trade-parity pricing to calculate underrecoveries. The finance ministry is likely to submit a note defending its stand,” said an official source close to the development. Following the tug-of-war between the two ministries, former Planning Commission member and energy expert Kirit Parikh had been appointed to look into the finance ministry’s suggestions.

The committee has also suggested an increase in diesel prices by more than the 50 paise dose per month followed since the decontrol measures were introduced in January this year.

Now, the prices of petrol and diesel are calculated 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 5,000-17,000 crore on underrecovery every year. That is the difference between refinery gate price and retail selling price which the government compensates.

At present, 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 new methodology was mooted to bring down the underrecovery. Petroleum Minister M Veerappa Moily had been taking a tough stance on the issue, citing the export-parity pricing was “unviable” and was rejected earlier by the B K Chaturvedi committee.
THE ISSUE

• Subsidy: Govt gave subsidy to oil marketing firms on the basis of a fixed return on investment under the administered price mechanism
• Freedom: After April 2002, firms were to get pricing freedom; they had to price products on the basis of what importers would pay in case of actual imports (including Customs duty)
• Parity: Effective from June 16, 2006, trade parity pricing gave import parity 80% and export parity 20% weight
• Pricing: Export parity price represents the price oil companies would realise on export of products