Petrol Stop - End petrol subsidy, says ONGC

End petrol subsidy, says ONGC

Friday, 15 January 2010

16 Jan 2010;business-standard.com:Ajay Modi & Jyoti Mukul:New Delhi: Oil and Natural Gas Corporation (ONGC) is in favour of full market price parity for retail sales of petrol and partial burden sharing by consumers of diesel, LPG and kerosene. The company has also suggested a formula for sharing the burden of an increase in crude oil prices beyond $60 a barrel. Being a producer of crude oil, ONGC would normally gain from the spurt in crude oil prices but it does not get the complete upside since it is forced to bear a portion of the subsidy on sale of cooking and auto fuels. Chairman and Managing Director R S Sharma told Business Standard the company’s presentation to the Kirit Parikh committee on oil prices had suggested the entire subsidy mechanism be set right, based on prevailing crude oil prices. The Parikh report is expected shortly. Stating there was no need to subsidise petrol prices, Sharma said: “We have submitted that a matrix needs to be developed, starting from the $60-price level. At these levels, what should be the pricing of consumer products linking with the international parity? Let the government consciously decide which product needs to be subsidised, to what extent.” As an example, he said, consumers can share half the price increase in diesel, with the remaining amount to be absorbed by the system. Similarly, at least 20 per cent of the price increase for LPG should be borne by the consumer, and the rest by the government. “Since kerosene is sensitive, the government or the system can bear 90 per cent of the increase but at least 10 per cent of increase should be passed on, so that everybody feels the pinch,” he said. Adding that these numbers could vary, based on the decision taken by the government. The company has also suggested that the upstream companies (ONGC, Oil India, GAIL, all producers) could share under-recoveries from an additional cess which may be levied beyond a certain level of crude prices (say at $60 a barrel). “We are willing to bear higher subsidy discounts as the crude prices move up in a calibrated formula. Instead of ad hoc discounts, our share can be taken as windfall tax or as a special cess and that corpus should be used to compensate the under-recovery of the downstream companies,” Sharma said. The ad hoc discounts given by ONGC to downstream companies are questioned by state governments and they insist ONGC should pay royalty on the full price of crude. This issue can be addressed through a notified decision of the government, he said.