labels: Economy - general
Government unlikely to accept panel suggestion for monthly hike in fuel prices news
12 August 2008

Mumbai: A monthly hike in petrol prices by Rs2.50 a litre per month till March 2009 and diesel prices by Rs0.75 per litre till 2010, to eliminate fuel subsidies, suggested by a high-level panel has met with lukewarm response from the petroleum ministry.

In its report submitted to the prime minister early this month, the Chaturvedi panel proposed a hike in BS-II petrol prices by Rs2.50 a litre each month till March 2009 and Rs3.00 for BS-III.

The committee has proposed a total increase of Rs10.90 a litre in selling prices of BS-II petrol (before state taxes and duties) and an increase of Rs11.28 a litre on BS-III petrol.

The panel proposed a total increase of Rs18.30 a litre (before state taxes and duties) over 24 months on BS-II diesel and an increase of Rs20.90 a litre on BS-III diesel.

For diesel, the three-member panel headed by planning commission member B K Chaturvedi also suggested a four-stage levy of a `Metro Extra' tax of Rs2 per litre in large cities and a `super profit tax' on oilfields awarded before 1999.

The committee also held that industrial use of diesel, which accounts for about 10 per cent of total consumption of the product, should not be eligible for subsidy and should be at negotiated prices.

It further proposed phasing out of subsidies on cooking fuels for non-BPL families.
 
The Chaturvedi panel also suggested a new tax on oil produced from fields awarded prior to the New Exploration Licensing Policy (NELP) in 1999 to offset subsidies on LPG and kerosene.

The imposition of a tax on oil produced from fields awarded prior to the NELP in 1999 would strip state-run firms like ONGC of any gains above $75 a barrel while private companies like Cairn would be taxed at 40 per cent for gains over this benchmark rate.

The panel has also suggested pricing fuel at export-parity, which would be 10-15 per cent lower than the trade parity pricing followed now, thereby bringing down the projected revenue losses.

The Chaturvedi panel suggested reducing import duty on petrol and diesel from 2.5 per cent to zero and excise duty on petrol from Rs13.75 per litre to Rs10 a litre.

Domestic retail prices of fuels is currently determined in an 80:20 mix of import-parity and export-parity prices.

The panel has recommended squeezing the marketing margins instead of a tax on windfall gains.

Public sector oil companies, including Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum, have projected Rs2,46,600 crore revenue loss even after the steepest fuel price hike in the country.

Even after the 10 per cent hike in fuel prices. These three oil retailers have projected a combined revenue losses at Rs2,05,740 crore for the 2008-09 fiscal.

However, no one in the government, not even in the petroleum ministry, is ready to accept the suggestions of the panel appointed by the prime minister to look into the financial position of oil firms.

The panel's recommendations for bringing fuel prices at par with production costs by injecting financial health into public sector oil firms were too radical and hence unimplementable, petroleum ministry sources said.

With inflation crossing 12 per cent and the general elections around the corner, it is unlikely that the government accepts the report wholesale.


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Government unlikely to accept panel suggestion for monthly hike in fuel prices