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The Government auditor feels that there is need to ensure that the pricing mechanism on regulated petroleum products such as diesel, domestic LPG and kerosene does not unduly benefit private/standalone refineries.
In its report on Pricing Mechanism of Major Petroleum Products in Central Public Sector Oil Marketing Companies for the year ended March 2013, the Comptroller and Auditor General of India, has said that the Government may ensure that the existing practice of compensation for domestic supplies to oil marketing companies at rates higher than their export realisation does not unduly benefit some refiners.
The report tabled in Parliament today also points out that continuance of protection in the pricing mechanism of major petroleum products was intended to improve efficiencies and encourage appropriate investments in technology upgradation in PSU refineries, which has not been fully achieved.
“Though the Ministry for Petroleum & Natural Gas has advocated continued support to these refineries through the pricing methodology, there is strong case for review of this mechanism in view of the limited progress in improvement of the efficiencies of refineries and consider an alternate transparent, target oriented mechanism in the case of poorly performing refineries,” it said.
The auditor has also suggested that the Government may put in place a formal transparent burden sharing mechanism among all stakeholders – upstream companies, oil marketing companies, and Government – instead of the present adhoc system of compensation of under-recoveries so that the compensation is received in time and oil retailers do not face working capital crunch.
On the scheme for subsidised domestic LPG and kerosene sold under public distribution system, it said that the 2002 scheme may be revisited to reflect more accurately the under-recoveries/subsidy requirements on the two products and ensure that such amounts are budgeted in the respective years.
Further, the report says that the Government may pursue rationalisation of State taxes on major petroleum products and transition to an integrated tax regime with tax payable on value added at each stage of operation in a time bound manner.
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