Chaturvedi panel favours differential pricing for diesel
The high-powered committee on financial position of oil companies headed by Mr B K Chaturvedi, while proposing a constant price hike on auto fuels over a period, has also suggested a differential pricing for diesel to industrial and commercial users. It further proposed phasing out of subsidies on cooking fuels for non-BPL families.The committee held that industrial use of diesel, which accounts for about 10 per cent of total consumption of the product, should not be eligible for subsidy and, therefore, the sale of diesel to industrial and commercial users be done at market prices to be negotiated on commercial consideration. In its report submitted to the Prime Minister early this month, the committee proposed a hike in BS-II petrol prices by Rs 2.50 a litre each month till March 2009 and for BS-III it has recommended a premium of 50 paise a litre over BS-II.For diesel, it has proposed an increase by 75 paise a litre each month till 2010. This is to eliminate subsidies on the two fuels. A total increase of Rs 10.90 a litre in selling prices of BS-II petrol (before State taxes and duties) and an increase of Rs 11.28 a litre on BS-III have been proposed by the committee. It proposed a total increase of Rs 18.30 a litre (before State taxes and duties) over 24 months on BS-II diesel and an increase of Rs 20.90 a litre on BS-III. Further, for diesel the committee also proposed levying of a ‘metro extra’ tax of Rs 2 a litre on large notified areas to be imposed through four 50 paise per month impost.It has also suggested a temporary reduction in excise duty on petrol to Rs 10 per litre (current Rs 13.75 a litre) to be restored by March 2009. The committee has proposed that the import duty on petrol and diesel should be reduced to zero, as has been done in the case of crude oil, domestic kerosene and LPG. By proposing a change in pricing basis of the products to export fob (freight on board) prices, the committee has placed more challenges for the refiners, where the protection that has been accorded to them by way of ocean freight and import duty has been taken away. Reiterating that the fuel subsidies are only justified in the case of domestic petroleum fuels – kerosene and LPG – supplied to BPL families, the committee has proposed that this subsidy should be delivered through smart cards or cash transfer and not through supply of products much below their market prices. For urban and semi-urban areas, BPL families who need kerosene be issued smart cards or receive funds to be transferred through the banking/postal system for purchase of present ration card entitlement of kerosene. The actual sale of the product should be done at market price and on unrestricted basis. Further, the allocations of kerosene made to the states should also be reduced. For domestic LPG, the entitlement to subsidised supply should be reduced to six refills in a year. In the subsequent year this should be further reduced four refills and in the next two years to two and nil respectively. Households should be encouraged to subscribe to the piped city gas network wherever available, the committee has suggested. LPG subsidy for BPL families should, as in the case of kerosene, be eventually provided directly through smart cards or cash transfer mechanism, it has said.
