News Release Details
Oil bonds may be scrapped this year, Budget to take hit
New Delhi 02-Aug-2007
The government is set to end the practice of issuing bonds to state-owned oil marketing companies and, instead, will meet its share of subsidy by providing for it in the Budget. Losses due to the sale of fuel at lower-than-market prices by oil marketing companies are estimated at Rs 52,162 crore this fiscal. Government officials told FE the finance and petroleum & natural gas ministries are framing a strategy for petroleum product pricing. They have decided to fall back on the Rangarajan panel's recommendations submitted to the government last year. The move to end bond issues follows recognition that the long-term mismatch between domestic retail prices and global oil prices is unsustainable without government intervention. Accordingly, a three-pronged package has been proposed, under which the government will affect a price hike in four products, meet its burden by current provisioning without recourse to oil bonds, and modify the existing LPG and kerosene subsidy scheme to clearly target the poor. A parallel exercise is also being undertaken to restructure excise duties. In line with the Rangarajan panel's recommendations, it is proposed to shift to a specific levy and calibrate the levies at Rs 5 a litre for diesel and Rs 14.75 a litre for petrol from the present mix of specific and advalorem duties. A petroleum ministry official, however, said, "In our cabinet note, we have only sought an appropriate increase and no specific increase in the retail prices of the four fuels has been indicated. It will be left to the Cabinet to decide what can be passed on to consumers." According to the ministry's calculations, every Re 1 a litre increase in the retail price of petrol, diesel and kerosene, along with a Re 1 hike a cylinder of LPG will reduce annual under-recoveries on petrol by Rs 1,040 crore, diesel by Rs 4,250 crore, kerosene by Rs 1,130 crore and LPG by Rs690crore.
New Delhi 02-Aug-2007
The government is set to end the practice of issuing bonds to state-owned oil marketing companies and, instead, will meet its share of subsidy by providing for it in the Budget. Losses due to the sale of fuel at lower-than-market prices by oil marketing companies are estimated at Rs 52,162 crore this fiscal. Government officials told FE the finance and petroleum & natural gas ministries are framing a strategy for petroleum product pricing. They have decided to fall back on the Rangarajan panel's recommendations submitted to the government last year. The move to end bond issues follows recognition that the long-term mismatch between domestic retail prices and global oil prices is unsustainable without government intervention. Accordingly, a three-pronged package has been proposed, under which the government will affect a price hike in four products, meet its burden by current provisioning without recourse to oil bonds, and modify the existing LPG and kerosene subsidy scheme to clearly target the poor. A parallel exercise is also being undertaken to restructure excise duties. In line with the Rangarajan panel's recommendations, it is proposed to shift to a specific levy and calibrate the levies at Rs 5 a litre for diesel and Rs 14.75 a litre for petrol from the present mix of specific and advalorem duties. A petroleum ministry official, however, said, "In our cabinet note, we have only sought an appropriate increase and no specific increase in the retail prices of the four fuels has been indicated. It will be left to the Cabinet to decide what can be passed on to consumers." According to the ministry's calculations, every Re 1 a litre increase in the retail price of petrol, diesel and kerosene, along with a Re 1 hike a cylinder of LPG will reduce annual under-recoveries on petrol by Rs 1,040 crore, diesel by Rs 4,250 crore, kerosene by Rs 1,130 crore and LPG by Rs690crore.