Panel for deregulation of oil prices

Ahluwalia favours providing essential items to the poor at subsidised rates

As the ongoing phenomenon of rising global crude oil prices  threaten to severely dent the bottom line of the state-owned Oil Marketing Companies (OMCs), Planning Commission Deputy Chairman Montek Singh Ahluwalia has vouched for linking the retail prices of petroleum products with the global crude oil prices.

Pointing out that the country meets nearly 70 per cent of its oil requirements through import, he said it would be unsustainable to delink the retail prices from import costs.

Virtually endorsing the suggestion for the deregulation of retail prices of petroleum products, Ahluwalia said: “The Planning Commission’s view, which has been reflected in the integrated energy policy, is that domestic oil prices should reflect world prices.”
He said: “It does not make sense in subsidising the imported oil products, which are mainly consumed by the well-off.”    

Targeted subsidy

However, referring to the need for a targeted subsidy for the vulnerable section of the population, Ahluwalia said a methodology could be evolved to provide essential items like kerosene to the poor at a subsidised rate. In a bid to enable the state-owned OMCs to offset the impact of rising global crude oil prices, the petroleum ministry is putting forth a proposal to deregulate the pricing of at least two auto fuels—petrol and diesel.
As per the deregulation proposal, the state-owned firms will be allowed to fix the retail prices of petrol and diesel as per the market condition, once the global crude oil price exceeds  $ 70 per barrel.

With the basket of crude oil, country imports, averaging nearly $ 70 per barrel, the state-owned OMCs are losing about Rs 135 crore per day on sale of petrol, diesel, LPG and kerosene. Currently, the government is off-setting the revenue losses being incurred by the state-owned oil marketing firms through a three-pronged complex compensation mechanism. More than one-third of the revenue loss is being compensated through the sale of oil bonds to oil marketing firms while the other one-third is met through the sale of crude by state-owned oil and gas explorers like the ONGC and GAIL at a discount rate to state-owned oil retailers.

The remaining revenue loss is partly covered by the periodic rise in retail prices of petroleum products as allowed by the government.

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