People's Democracy

  Note On Petroleum Product Pricing

The following note regarding petroleum product pricing has been submitted by the CPI(M) to the UPA government on May 6

THE price hike in MS and Diesel has been proposed under the followed three accounts:

1. Cess                                               Rs 0.50/litre

2. Excise duty            Rs 1.70/litre for MS and Rs 1.15/ litre for Diesel

3. Rise in global crude price  Not yet worked out

Cess: It is not fair to burden consumers with an increase in cess in view of the abnormal rise in global crude price.

Excise Duty:

a)     In the note by the petroleum ministry, the above increase in excise duty has been worked out after reduction of customs duty on crude oil. This means even without the cess, the changes in the duty structure declared in the budget, irrespective of the finance minister’s perception of revenue neutrality, will lead to considerable increase in retail price. This goes totally against what finance minister said in the budget, “the proposed changes are revenue neutral and I have been assured that there will be no increase in the retail price of the product as a result of the changes in duty structure.”

Any price hike, therefore, on this account goes totally against the assurance in the parliament. The finance minister should ensure that proposed duty changes do not lead to retail price hike, on account of his proposed excise duty changes.

b)     It is felt that the proposed changes in duty structure has actually helped the stand-alone private refineries specially Reliance while hitting the public sector oil companies. Import duty reduction has helped the refining sector, but the excise duty changes, applicable after refining, affects adversely the marketing/retail sector managed by the oil PSUs.

International Crude Price:

a)     The petroleum minister had agreed that the import parity in pricing of petroleum products is quite irrational in view of India’s own indigenous capacity in refining sector, which has reduced import of petroleum to minimum. This has actually resulted in undue refining margins specially to stand alone private refiners gaining the most with the gross refining margins going as high as 12 dollars per barrel compared to 4 to 6 dollars per barrel before the present pricing mechanism came into force.

b)     As for the hike in international crude price, we again propose the same to be balanced through price stabilization find, keeping in view high volatility of crude price in the global market. The fund (Rs 5,400 crore per annum) collected through cess on indigenous crude @ Rs 1800 per tonne under Oil Industry Development Act - 1974 would be used for the purpose. Similarly the duty drawback to the exporters of petroleum products (Rs 1200 crore per annum approx) should be reviewed under the present global oil scenario when demand is much more than the supply

Dwindling Subsidy:

As per the figures submitted before the standing committee by the ministry of petroleum and natural gas, subsidy from fiscal budget had been gradually reducing as can be seen from the following table.

However, during the same period contribution to the central exchequer by oil PSUs have gone up from Rs 46,603 crores in 2001-2002 to Rs 69,195 crore in 2003-2004. The figure for 2004-2005 may please be ascertained. It is felt that finance ministry should also share some burden imposed by the global crisis instead of leaving the same to the oil PSUs and the consumers.

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Further, oil PSUs should cut down some of their frivolous expenditures on advertisement and public displays, as the competition in retailing till now is mostly restricted to PSUs only.