– Petrol Prices Deregulated
– Marginal Increase in HSD, PDS Kerosene and Domestic LPG Prices
– Government to bear a large part of Under Recoveries.

To arrive at a viable and sustainable system of pricing of petroleum
products, Government had set up an Expert Group under the chairmanship
of Dr. Kirit Parikh. In the light of Government’s budgetary
constraints and the growing imperative for fiscal consolidation, and
the need for allocating more funds to social sector schemes for the
common man, the Government has decided that the pricing of Petrol and
Diesel both at the refinery gate and the retail level will be
market-determined. However, in respect of Diesel, the initial increase
in retail selling price of Diesel will be Rs.2 per litre at Delhi,
with corresponding increases in other parts of the country. Further
increases will be made by the Public Sector Oil Marketing Companies
(OMCs) in consultation with the Ministry of Petroleum & Natural Gas.
It has also been decided that in case of a high rise and volatility in
international oil prices, Government will suitably intervene in the
pricing of Petrol and Diesel.

2. Market determined pricing of Petrol and Diesel is expected to do
away with the OMCs’ under-recoveries on these two products, which are
projected to be approximately Rs.22,000 crore during the remaining
part of 2010-11. This will not only improve their financial health, it
will also enable Government to allocate greater resources for social
sector schemes. Market determined pricing is expected to attract
higher investments in the fuel retail sector, and by spurring market
competition, encourage OMCs to reduce costs, improve efficiency and
service standards. Market determined pricing will also incentivise
fuel conservation and encourage the consumer to adopt fuel efficiency

3. In view of the importance of the household fuels, namely PDS
Kerosene and Domestic LPG, the Government has decided that the
subsidies on these products will continue. The PDS Kerosene and
Domestic LPG Subsidy Scheme, 2002 and the Freight Subsidy (For
Far-flung Areas) Scheme, 2002 have been extended till 31.03.2014.

4. The current prices of PDS Kerosene and Domestic LPG are the lowest
among the neighbouring countries. The consumer price of Kerosene is
Rs.35.97/litre in Pakistan, Rs.29.43/litre in Bangladesh,
Rs.21.02/litre in Sri Lanka and Rs.39.24/litre in Nepal. Similarly,
the consumer price of LPG is Rs.577.18/ cylinder in Pakistan,
Rs.537.37/ cylinder in Bangladesh, Rs.822.65/ cylinder in Sri Lanka
and Rs.782.84/ cylinder in Nepal.

5. At current international oil prices, the OMCs are incurring an
under-recovery of Rs.17.92 per litre on PDS Kerosene and Rs.261.90 per
cylinder on Domestic LPG. To reduce this under-recovery burden of the
OMCs as also to protect the common man, the Government has decided to
increase the retail price of PDS Kerosene by only Rs.3 per litre and
of Domestic LPG by only Rs. 35 per cylinder (at Delhi), with
corresponding increases in other parts of the country.

6. Even after the above measures, the Government and the Public Sector
oil companies are expected to bear an estimated under-recovery burden
of about Rs.53,000 crore on the four sensitive petroleum products
during 2010-11.

7. The Government is committed to making available the essential
fuels, particularly the cooking fuels to the common man at affordable
prices. The above decisions will not only continue to protect the
vulnerable sections of society but also improve the financial health
of the public sector OMCs, which need resources to invest in new
refineries, marketing terminals, storage depots, pipelines, port
facilities and other infrastructure for ensuring the country’s
long-term energy security

Author: Malvaniya Prashant

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