Kirit Parikh panel for deregulation of petrol, diesel; kerosene and LPG price hike

Wednesday, February 3, 2010, 19:15 by Business Editor

Panel wants total deregulation of petrol, diesel prices; hike in price of kerosene by Rs 6 a litre, of LPG by Rs 100 a cylinder

New Delhi: A panel of experts led by economist Kirit Parikh has submitted its much-awaited report on fuel pricing to the Union Ministry of Oil, recommending, among other things, total deregulation of the prices of petrol and diesel.

The panel also recommended that the price of kerosene be immediately increased by Rs 6 a litre and of liquefied petroleum gas (LPG) by Rs 100 a cylinder.

In its report, the Kirit Parikh panel suggested to free prices of petrol at refinery-level and at retail-level. At present, public-sector oil companies lose Rs 3 per litre of petrol. The government-owned oil marketing companies are Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Limited (HPCL), and Bharat Petroleum Corporation Limited (BPCL).

The Kirit Parikh committee also recommended that retail prices of diesel be “market-driven.”

The Kirit Parikh panel report made recommendations on 4 major fuel groups – petrol, diesel, kerosene and LPG. The following are the main recommendations on each group:

Petrol: Complete deregulation of prices.

Kerosene: Subsidy on kerosene should continue; smart cards must be issued for subsidised kerosene distribution; need to rationalise kerosene supply under public distribution system (PDS) since at present 35% of PDS kerosene is being used to adulterate diesel; in favour of linking increase in kerosene price to rural income; in favour of hiking Rs 6 per litre of kerosene.

Diesel: Should link increase in diesel price to per-capita income.

LPG: The burden of subsidy on LPG at present is very high – at Rs 287 per cylinder; in favour of a hike of Rs 100 per cylinder of LPG; in favour of fixed government subsidy-sharing for loss in revenue of cooking fuel.

After the Kirit Parikh Commission presented it report, S Sundaresh, Secretary for Oil, said Prime Minister Manmohan Singh wants the report to be passed at the earliest.

Murli Deora, Union Minister for Oil, said the Parikh committee report will be placed before the Union Cabinet for discussion within a week.

The committee pegged the losses incurred by government-run oil marketing companies at Rs 40,000 crore because of having to sell transport fuels at “below cost.”

Kirit Parikh told a news conference that the fuel-pricing policy will address the government’s fiscal problems. “There is no way,” he asserted, “that we can continue with the present pricing policy.”

If the Central Government accepts the Kirit Parikh committee’s recommendation to free the prices of petrol and diesel, the price of petrol is likely to go up by Rs 4.70 a litre, and the price of diesel may increase by Rs 2.30 a litre.

The media reported an official of the Ministry of Oil as saying that an increase in the prices of petrol and diesel is impending unless the Union Ministry of Finance pays full cash compensation to the government-owned oil companies for kerosene and LPG.

It may be noted that the Finance Ministry has decided to pay a compensation of only Rs 12,000 crore in 2009-10 to public-sector oil companies for selling kerosene and LPG gas ‘below cost’ as against the total estimated loss in revenue of Rs 31,000 crore in the fiscal year.

In July 2009, the Union Cabinet had decided to meet the entire revenue loss of public-sector oil marketing companies on kerosene and cooking gas either through oil bonds or through cash.

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