05 Feb 2010;business-standard.com:New Delhi: A day after the Kirit Parikh committee recommended freeing of auto fuel prices and increase in kerosene and LPG prices, the Union petroleum ministry called a meeting of the public sector upstream and downstream oil companies to discuss the road ahead. Though oil companies have welcomed the report, they are keeping their fingers crossed, since the bold recommendations have invited political criticism. “We had a meeting on the Parikh Committee report. I am sure that by next week, the ministry will be ready to offer its suggestions. This has to go to the cabinet,” said Murli Deora, minister for petroleum and natural gas. “We are also inviting suggestions from the general public through our website.” Executives of Oil and Natural Gas Corporation (ONGC), GAIL, Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPC) and Bharat Petroleum Corporation (BPC) attended the meeting. S Sundareshan, petroleum secretary, said the ministry would send its proposals to the Cabinet by next week. Asked if a decision on the recommendations could be expected before the Union budget on February 26, he said, “I hope so.” Sources said while Deora was convinced about a rise in petrol prices, he was not sure about cooking fuel price increases. The Parikh committee had recommended market-determined pricing for petrol and diesel, while linking the price of domestic LPG and PDS kerosene to the increase in per capita GDP and agricultural GDP. At the current levels, it translates to a rise of Rs 3 a litre on petrol, Rs 3-4 on diesel, Rs 6 a litre on kerosene and Rs 100 on each domestic LPG cylinder. To bring down the underrecoveries suffered by oil marketing companies on sale of LPG and kerosene, the panel had suggested periodic reduction in PDS kerosene allocation, based on the level of electrification in villages and a periodic price increase. The eventual goal is to move to a ‘smart card’ system of direct subsidy through use of a citizen’s unique identification number. It also recommended that the two upstream companies, Oil and Natural Gas Corporation and Oil India, be asked to share a portion of their incremental revenue from nominated blocks. While accepting ONGC’s recommendations on a graded increase in burden sharing, based on increase in crude prices, the committee rejected the idea of a windfall tax. Share prices of most public sector oil companies gained today, even though the Sensex closed with a dip of 271 points. GAIL gained 3.14 per cent to close at Rs 418.20, ONGC gained 0.56 per cent to close at Rs 1,139.50, IOC gained 0.16 per cent to close at Rs 316.80 and BPC ended the day with a gain of 0.35 per cent, at Rs 582.50. The stock prices of HPC and OIL, however, lost 0.84 per cent and 0.98 per cent, respectively. A day after an expert group headed by former Planning Commission member Kirit Parikh recommended market-determined pricing for petrol, diesel and other fuel products, the government was looking for ways to dilute the suggestion substantially, after the proposal received criticism from within the ruling United Progressive Alliance (UPA). “If the Parikh committee report is accepted at all, all we will do is a small increase in the price of petrol,” a top source in the government said. Publicly, ministers gave hints that political compulsions would not let the government accept the report in totality. “The government will ensure that the least burden is passed on to the poor and the common man... while also ensuring that the financial health of (PSU fuel retailers) is protected,” Minister of State for Petroleum and Natural Gas Jitin Prasada said amid protests, both from the UPA allies as well as the Opposition over the proposed price rise. The Parikh report could not have been more ill-timed. The Congress Working Committee (CWC) is meeting tomorrow to discuss the price rise issue. This will be followed by a conference of chief ministers on the same issue. Privately, Congress leaders fretted that leave alone the allies, such a drastic increase in price would not fly even in CWC.
05 Feb 2010;business-standard.com:Sanjay Jog:Mumbai: Analysts have said the recommendation of the Kirit Parikh committee report on fuel prices need to be implemented as a package and not partially. Yet, they also feel the recommendations are too aggressive to be implemented in the current form, given inflation concerns, implementation issues and political considerations. However, analysts were unanimous that a one-time hike in petrol and diesel prices may happen. The report suggested the government deregulate these, increase the kerosene price by Rs 6/litre and raise it every year, and increase LPG prices by Rs 100/cylinder and revise upward periodically. However, investment bank and broking firm Morgan Stanley, in its report, observed that if all the price hikes are implemented, the direct impact on inflation would be 1.26 per cent (current inflation is 7.3 per cent). “We believe these policies would be positive if implemented, but in the short term, we expect at least the auto fuel price increases to take place. This should increase direct inflation by 0.23 per cent, taking the breakeven price to $69/bbl. The next step is for the ministry of petroleum to discuss the proposal with the government and set a path for implementation,” the report said. Goldman Sachs believes partial deregulation of fuel prices would not help oil marketing companies (OMCs), since they remain dependent on state-owned upstream companies and government grants. The government is keen to reduce its own share of subsidies over fiscal deficit concerns and, hence, OMCs have limited scope to earn high profits. “We continue to believe it is unlikely for OMCs to be fully compensated for losses on fuel sales, which the finance ministry has already indicated. Also, the fate of any fuel pricing reform remains hinged to the path taken by international oil prices. Even in China, which has instituted fuel pricing reforms, there is no clarity on fuel prices if oil goes beyond US$80/bbl. We prefer upstream companies (OIL/ONGC/GAIL) over downstream companies, which have more moving parts like refining margins, high debt. Auto fuel price deregulation, if implemented, would be positive for upstream companies, as they share the entire auto-fuel losses for the OMCs,” says Goldman Sachs’ report. According to Credit Suisse, the recommendations are a package; partial implementation not a solution “The recommendations of the Parikh committee tie in well together. If all recommendations are implemented, the government would have to bear a fixed amount of subsidy each year, making the system less volatile and government finances more predictable. This is important to ensure PSU company earnings are not uncertain as well. However, the non-implementation of one key aspect – the deregulation of diesel prices – would destroy this arithmetic. Without free diesel prices, the government faces ballooning funding issues at higher crude oil prices and would again be forced to cut corners in payments to companies. Even partial implementation of some recommendations will go some way in alleviating the stresses in the system and will help assure BPCL/HPCL company earnings if oil prices remain range-bound,” the report mentions. Edelweiss says the committee has recommended an extreme price hike scenario. With the current high inflation numbers and pressure from the opposition, it may be difficult for the government to increase prices. “On the other hand, we believe that this is the best period (next six months) to increase prices, due to absence of state elections and the fact that the Centre elections are still away (2014),” it said. CitiGroup, in its report, notes that despite the recommendations being positive in intent, practical hurdles exist, especially with the politically challenging issues of full deregulation of diesel and LPG/kerosene price hikes. Any compromise solution which selectively picks the recommendations and protects consumers could significantly reduce ONGC and OIL’s leverage on crude prices.
Essar Oil to double petrol pumps to 2,500 by March 2011
05 Feb 2010;dailypioneer.com:New Delhi: Essar Oil, India’s largest private fuel retailer, plans to nearly double its petrol pumps to 2,500 by March 2011, group Chairman Shashi Ruia said on Thursday. “We are expanding our petroleum retail business... We are going to increase (number of petrol pumps) to 2,500 by next fiscal (end),” Ruia told reporters at the Diamond Jubilee celebrations of Press Trust of India, organised by the Federation of PTI Employees’ Union. Essar currently sells petrol and diesel produced at its 280,000 barrels per day refinery at Vadinar in Jamnagar district of Gujarat through 1,293 petrol pumps. Fuel from the company’s outlets in Gujarat are priced almost at par with public sector who get Government subsidy for selling petrol and diesel at rates lower than the imported coast. In the remaining states, Essar sell petrol at Rs 2-4.5 a litre higher than those of state-run Indian Oil, Hindustan Petroleum and Bharat Petroleum while diesel is priced at least a rupee more. Besides Gujarat, Essar has petrol pumps in Rajasthan, Madhya Pradesh, Maharashtra, Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Orissa and Uttar Pradesh. Ruia said expansion of retail network would help the company sell increased production of fuel especially diesel at Vadinar refinery. Essar is expanding the non-fuel retail activities at its outlets and plans to dispense CNG and Auto LPG from the outlets this year.
04 Feb 2010;business-standard.com:New Delhi: An experts group headed by former Planning Commission member Kirit Parikh has recommended an incremental rate of taxes on higher crude oil price realisation from the nomination blocks of Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) to keep the government’s subsidy share in the range of Rs 19,780-23,340 crore at various levels of crude. ONGC and OIL, the government-owned upstream oil companies, were given oil blocks on a nomination basis prior to the opening up of the sector in the 1990s Currently, the two companies along with GAIL India are bearing the under-recoveries of oil marketing companies (OMCs) on the sale of petrol and diesel. The under-recoveries on kerosene and LPG are supposed to be compensated by the government. Prior to the current arrangement, the three companies had to shell out Rs 32,000 crore in the form of discounts to OMCs in 2008-09. The committee has suggested market-linked prices for petrol and diesel. However, only a partial increase of Rs 6 a litre and Rs 100 on every cylinder of LPG has been proposed. It has also proposed a reduction in PDS kerosene allocation by 20 per cent. This, however, still leaves an under-recovery from these two products. With the implementation of incremental tax rate for ONGC and OIL, the share of government subsidy towards kerosene and LPG can be contained at various price levels of crude. The government share, if the price of crude oil remains at $70 a barrel will be Rs 19,780 crore, at $80 a barrel, it will be Rs 22,760 crore, and so on. The panel, however, has not recommended a windfall profit tax, since it felt the petroleum ministry ought to have flexibility in mopping up incremental incomes of ONGC and OIL for the purpose of meeting a part of the under-recoveries of OMCs on the sale of domestic LPG and kerosene reserved for the public distribution system. The B K Chauturvedi Committee formed after oil prices ruled at a historic high of $147 a barrel in July 2008, had recommended a 100 per cent windfall tax on a price level of $75 a barrel. It also said that once the adjustment of prices of automotive fuel was completed, the tax should be either annulled or reset downwards to equal the fuel subsidies made available only to families below the poverty line for kerosene and LPG.
04 Feb 2010;economictimes.indiatimes.com:Sanjay Dutta & Pradeep Thakur:NEW DELHI: After food items, it is the turn of motor fuels to burn a bigger hole in your pocket. An increase of at least Rs 3 a litre in petrol and Re 1 in diesel prices appears very likely around the budget as the government nears the end of its capacity to extend a financial lifeline to state-run oil marketers. A panel under former Planning Commisson member Kirit Parikh, set up to review the petro pricing regime, set the stage on Wednesday for the upward revision recommending removal of government control over petrol and diesel prices, raising cooking gas price by Rs 100 per cylinder and kerosene by Rs 6 a litre. Government is unlikely to muster courage to fully accept the recommendations on kitchen fuels, but a rise in motor fuel prices looks unavoidable. Besides, there is also the possibility of a small hike in cooking gas prices in phases. Oil minister Murli Deora said he would take the Parikh report to the Cabinet in a week, amid indications of a convergence of view in the government that a hike could not be put off any more. "Very likely," said sources in the finance ministry when asked about the hike. Two similar committees before the Parikh panel — under former RBI governor C Rangarajan and former cabinet secretary and Plan panel member B K Chaturvedi — too had suggested freeing motor fuel prices. But unlike in the past, there are three key factors that could force the government to bite the bullet this time — perhaps with the precaution of a calibrated cap on the extent oil firms can raise prices of diesel since this is a key input for farmers. The main factor forcing the government's hands is the rising deficit and cost of economic stimulus, farm support prices besides social sector spendings. The finance ministry has put its foot down on giving any more dole. More so, when its hope of a significant cash flow has been dashed now that the auction of 3G radio spectrum is not happening this fiscal. And whatever money is to flow in from follow-on sell-off in NTPC will go towards bridging the deficit. All other offerings will happen in the next fiscal. This leaves little scope for subsidising motor fuels.Politically speaking, this is the right time to administer the bitter pill, as state elections are months away. Bihar elections are scheduled only in November. The window can be used for letting any political storm over a hike blow over. Still, there are concerns of an adverse fallout, especially at a time when food inflation remains high. Government, however, is taking solace from the calculation that a hike of Rs 3 a litre for petrol and Re 1 a litre for diesel will have only a marginal impact on overall inflation.
Free auto fuel pricing, raise LPG rates by Rs 100/cylinder: Panel
04 Feb 2010;dailypioneer.com:New Delhi: Kirit Parikh committee, appointed by Government for reforming the oil sector, on Wednesday suggested not only freeing petrol and diesel prices but also called for raising LPG rates by a steep Rs 100 per cylinder and kerosene by Rs 6 a litre. If these recommendations are accepted, prices of petroleum products will shoot up sharply. But chances are unlikely as the country is already battling high inflation. At current global crude oil prices, deregulating auto fuel pricing would result in a hike of Rs 4.72 a litre in petrol prices and a rise of Rs 2.33 per litre in diesel rates. Considering the cascading effect an increase in diesel rates would have on food prices, this recommendation may not be accepted while there seems to be a consensus between ministries of finance and petroleum on freeing petrol prices. “Current petroleum product pricing policy of the Government is not sustainable,” Kirit Parikh, who headed the panel, which also included Finance Secretary Ashok Chawala and Oil Secretary S Sundareshan, said after submitting the report to Petroleum Minister Murli Deora. At present, kerosene is sold at a discount of Rs 18.06 a litre and domestic LPG cylinder at Rs 287.59. The remainder of the gap between retail price (after the suggested increase) and the imported cost of fuel should be met by the Government and by upstream firms ONGC and Oil India. Parikh, did not see much inflationary pressure because of the measures suggested saying the steps like increase in tax rates needed to bridge the fiscal gap between the retail price and actual cost was unsustainable. Deora gave enough hints that the Government will not take any decision in haste saying the report will be “processed” and presented to the Government in a weeks time. Sources said the Government may accept the recommendation of freeing petrol price but may adopt a more calibrated approach on diesel as a rise in transportation cost will further fuel food inflation. A hike in LPG rates was expected but not as steep as suggested while kerosene may not be touched. Petrol in Delhi costs Rs 44.63 a litre while diesel is priced at Rs 32.87. A 14.2-kg LPG cylinder costs Rs 281.20 and and kerosene is priced at Rs 9.09 per litre. Without any increase, Indian Oil, Bharat Petroleum and Hindustan Petroleum are estimated to lose Rs 46,030 crore in revenues this fiscal. As per the current policy, the revenue loss on petrol and diesel is met by upstream firms like ONGC. Of the Rs 31,574-crore revenue loss expected on LPG and kerosene, the Government has so far given Rs 12,000 crore. He said hikes suggested by the panel in kerosene were in step with the rise in rural per capita income since the last increase was in 1999 (a hike of Rs 2 per litre to Rs 9.09.) The rise recommended in domestic cooking gas rates was also in proportion to the rise in urban per capital income. Freeing auto fuel prices, which would promote competition as the present policy has virtually driven private sector out of business, has been suggested after considering its impact on users, he said and added users had the capacity to pay. “This is a good time to free prices because petrol and diesel prices increases will be very low,” Parikh said. “You would not wait for crude to touch $120 a barrel again.” “There is no escaping from passing on the international price (to consumers),” he said. The committee suggested that LPG and kerosene prices can be raised every year in step with the growth in per capital agricultural GDP at nominal rates and per capita income respectively. Parikh said the fiscal deficit-led inflation (rise in prices of essential commodities caused because of the government having to take fiscal measures like tax hikes and borrowings) effects everyone including the poor and farmers. Freeing petrol and diesel prices will not only promote competition but also lead to more equitable sharing of inflation burden, affecting mostly people who can pay. “We have examined the implications of increase in retail price of diesel on various groups of consumers and do not find any compelling reason to subsidise them,” the report said. “The present system of price control on petrol and diesel in particular has resulted in major imbalances in the consumption pattern of petroleum products in the country, and has put undue stress on finances of the PSU oil marketing companies as well as of the Government,” he said.
