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NEW DELHI, April 14

THE Standing Committee on Petroleum and Chemicals has called for evolving a suitable mechanism to stop the frequent revision of prices of petroleum products to give relief to the domestic customers.

While analysing the demands for grants of the Ministry of Petroleum and Natural Gas in its 39th report tabled in Parliament by its Chairman, Mr Mulayam Singh Yadav recently, the Committee said the Government had effected dismantling of administered pricing mechanism (APM) without rationalising the duty structure to the specified level.

After the dismantling of APM, the prices of petroleum products had become market-determined. Under these circumstances, the people faced two types of burdens. On one side, they were still bearing the burden of higher rate of excise duty and on the other side; they were paying higher prices decided by the oil companies, which had been revised frequently during the period of one year, it said.

Hence, the Committee has asked the Government to rationalise the duty structure as per the earlier decision of 1997 so that the adverse implications of dismantling of APB might be obviated and customers might get some relief. It said during the last one year in the post-APM era, the prices of petrol and diesel had been revised several times.

An analysis of the mechanism being followed by the oil companies in deciding the selling prices of petrol and diesel in post-APM period, the Committee said that the excise duty and sales tax constituted a substantial chunk against the basic price of diesel and petrol. This resulted in fixing higher selling prices for these products, it said illustrating that in Delhi, the excise duty and sales tax components worked out to 117 per cent on petrol and 40 per cent on diesel of the basic prices of these products at refineries on import-parity basis.

It further contended that the basic price of diesel at refineries was higher than the petrol price but the excise duty and ST on this product had been kept lower than petrol. Obviously, it said, this had been done to keep the selling price of diesel at affordable level. It also appreciated this logic since diesel was common man's transportation fuel. As against Delhi prices, the selling prices were higher in some of the States due to higher slabs of local taxation.

Thus viewing the price structure in entirety, the Committee said that the entire structure of excise duty and ST was at much higher level and needed "review" especially in view of the experience gained during the last one year in post-APM era when the prices of petrol and diesel had gone up considerably.

Hence, it urged the Ministry of Petroleum and Natural Gas to take up with the Ministry of Finance and also with the State governments the necessity of reducing excise and ST. As there is a wide difference in the selling prices of petrol and diesel leading to adulteration of diesel in petrol, the Committee has recommended that the excise duty on petrol be reduced considerably so that there is not much difference in the selling prices of these items.

In the post-APM era, ONGC has been selling oil at international rates while paying an enhanced cess of Rs 1,800 per tonne. During this period, the corporation's estimated profit after taxes have increased from Rs 4,552.66 crore for the period from April to December 2001(APM period) to Rs 6,850.85 crore during the period from April to December 2002 (post-APM period).

As a result, crude requirement by refining companies is being purchased as per the global price variations including indigenous crude being produced by national companies. In the recent past there has been a continuous increase in international crude prices and due to this reason the refineries have spent more and more amount on purchase of crude.

Earlier, they had been getting at least 30 per cent of crude produced indigenously at lower price and could bear variations in international prices to some extent.

Now, they had no way out, the Committee said adding that they were transferring each and every increase eventually to the customer. Under this type of arrangement during deregulated scenario, the ultimate sufferer is the customer, because neither the oil producing companies nor the refining companies are bearing any extra burden due to crude oil price rise.

It has also recommend that the Government should analyse the impact of this type of arrangement for purchase of crude on consumers and develop a practical formula suitable to all.

Alongside, the Committee also favours that the enhancement of cess from Rs 900 to Rs 1,800 per tonne imposed on national oil companies be withdrawn completely.

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