Price decontrols in one go is politically difficult

The Ministry of Petroleum and Natural Gas is never short of activity but ever since S Sundareshan took charge as petroleum secretary in February, significant moves have been made in key policy areas. In an interview with Ajay Modi and Jyoti Mukul, he says the recent pricing decision is significant even as he admits that total price decontrol at one go is politically difficult. Edited excerpts:

How far will the June 25 decision of the government that led to an increase in price of petroleum products and decontrol of petrol help in reducing government subsidy?

We are governed by the unfortunate realities of increase in international oil prices. There are only two solutions to this. One is that the entire burden of underrecovery is borne by the government, which means somebody else will pay or the consumer also partly contributes through a price increase. So, the government has taken a decision that the consumers, particularly those who are better off, will contribute when the price of international crude increases. Hence, a decision has been taken that the price of petrol will be market-driven, the price of diesel will be market-driven but at present the increase will be restricted to Rs 2 and there has been some small increase in the price of LPG and kerosene. According to our estimate, if the prices remain where they are, we have calculated that at $75, the estimated underrecovery will be Rs 53,000 crore as against Rs 72,000 crore estimated earlier. To that extent, the amount being borne out of budget will reduce.

Would a high inflation prevent the government from full decontrol?

There is no rethinking at this juncture. I would not like to speculate on what will happen in the future.

Since the major chunk of underrecovery is accounted for by kerosene and LPG, will this decision be of any help?

Without decontrol, the underrecovery on petrol for the full year would have been Rs 7,000 crore. The underrecovery on diesel and LPG would have been about Rs 23,000 crore and on kerosene, it would have been Rs 19,000 crore. Now, petrol is down to Rs 2,100 crore (till June 25), while diesel, LPG and kerosene have come down to Rs 14,000 crore, Rs 20,000 crore and Rs 17,000 crore, respectively.

Petrol accounted for just 10 per cent of the total underrecovery prior to the decision of decontrol. We do not know when diesel decontrol will be implemented. Is this another ad hoc increase or is there a long-term thinking on pricing policy?

In terms of petrol, a decision has been implemented that price will be market-driven. The oil marketing companies are free to determine prices. In the case of diesel, while it would be market-driven, for the present the increase is limited to Rs 2. Given the political compulsions, it is not possible to have all changes at one go. Whatever changes have been introduced are very significant. We will build upon these changes as we go along.

How will the upstream companies share the subsidy burden?

For the first quarter of the current year, the underrecovery was to the tune of around Rs 20,000 crore, of which Rs 6,500 crore has been already paid by the upstream oil companies. We have made a request to the finance ministry to provide the balance amount. The petroleum ministry will consult the finance ministry and a decision for the current year would be taken. This generally happens later in the year. So, no provision is there presently in the budget for the underrecoveries for the financial year 2010-11.

Will the oil marketing companies (OMCs) contribute to underrecoveries?

They have been doing it for the past few years, except for 2008-09, when the underrecoveries were to the tune of Rs 1,03,000 crore and the OMCs were not in a position to bear. In the current year, we will watch the situation as we go along.

The Kirit Parikh report said the question of taxes will be taken when the Goods and Services Tax (GST) comes into effect. Did the Empowered Group of Ministers (EGoM) take a view on it?

EGoM had no mandate to discuss taxes. While lowering taxes is good from the customer?s point of view, the state and central governments have their own compulsion to bring revenues from petroleum products, which is the highest source of revenue. These are decisions to be taken by authorities beyond the Ministry of Petroleum and Natural Gas.

On the issue of gas allocation, we see that fertiliser has a smaller chunk of D6 gas compared to power, even though EGoM had given highest priority to fertiliser. What is your view?

In a span of just one year, gas production has increased by 75 per cent and the gas is being utilised based on the decisions of EGoM. There has been no change in any of the decisions taken in the past, no change in the priorities. Insofar as additional allocation is concerned, there is no gas to be allocated in the financial year. In the future, the petroleum ministry will be indicating availability to the ministries of fertiliser and power. We will invite their suggestions on usage and will go to EGoM.

Will there be a price preference for any sector?


Is the production ramp-up from RIL?s D6 field as per schedule?

It is absolutely as per schedule. In the agenda given to EGoM last year, we had indicated that during the current year production will be around 58 million standard cubic metres a day and this is being produced.

The petroleum ministry has brought in decontrol of petrol, increased price of gas produced from nominated fields, and empowered the Petroleum and Natural Gas Regulatory Board. What is next on your agenda?

The next task is to launch the ninth round of the New Exploration Licensing Policy (Nelp-IX) by September and see that there is interest among investors. We will have an attractive package.

Will the Open Acreage Licensing Policy be implemented?

We are working on it. Hopefully, there will be no Nelp-X.

Source: Business Standard, Delhi, Tuesday, 10th August 201
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