ONGC's demand finds favour with fuel pricing panel

Oil and Natural Gas Corporation's (ONGC) demand for a transparent system of taking away incremental revenues beyond $60 a barrel crude price for fuel subsidies has found favour with an expert group on fuel pricing.

The Prime Minister-appointed panel, headed by former Planning Commission member Kirit Parikh, in its report to the government suggested adoption of ONGC model, where a Special Oil Tax (SOT) may be levied on crude oil producers if their produce fetches any price over $60 per barrel.

Parikh said such a levy should be restricted only to companies which had been given oil blocks on nomination basis. Only state-owned ONGC and Oil India have been given blocks on nomination basis.

 

According to the Parikh report, 20 per cent of the incremental price over $60 per barrel can be taken as tax to subsidise petrol, diesel, LPG and kerosene.

Forty per cent of price beyond $70 per barrel can be taken as special tax, 60 per cent for any rate above $80 a barrel and 80 per cent on price over $90 a barrel, it said.

ONGC, had in its presentation to the committee stated that crude price hike leads to increase in cost of inputs like field service material and equipment and "SOT rate should be calibrated so that ONGC is able to retain some portion of increase in price to cover rise in costs".

Till last year, upstream firms like ONGC were asked to bear one-third of the total revenue loss on auto and cooking fuel. This year, they have been mandated to bear all of the revenue loss on selling petrol and diesel below cost.

ONGC, has in six years since 2003-04 doled out Rs 86,005 crore in fuel subsidies, and this year it has already paid over Rs 5,000 crore.

The oil firm had stated that partial increase in international oil rates need to be passed on the consumers while a transparent mechanism which include SOT should be put in place to deal with the un-covered portion of the cost.

The uncovered portion of increase in cost of raw material (crude oil) needs to be equitably shared between upstream firms (like ONGC), refineries, oil marketing companies and the government.

While, the Central government should issue bonds or cash to cover for a per-fixed portion, excise duty should be reduced to lower the impact of spike in international rates.

The state government should also be asked to chip in by foregoing the incremental revenues they get because of sales tax/VAT rates being ad-valorem, it said.

The B K Chaturvedi Committee had in 2008 recommended SOT to kick in at $75 per barrel but its report had been not implemented so far.

Parikh committee is the third panel constituted by the government on the issue with recommendations of previous C Rangarajan committee and B K Chaturvedi committee not fully implemented.