Government planning higher diesel price

The government is planning a higher dose of diesel prices to cut the fuel subsidy bill, Petroleum Secretary Vivek Rae said here Thursday.

“We are circulating the Kirit Parikh report for inter-ministerial consultation. The suggestions for higher dose of diesel price would be part of it,” Rae told reporters on the sidelines of a business partners meet organised by the Confederation of Indian Industry (CII), in the run-up to Petrotech 2014.

The Kirit Parikh panel had recommended a Rs.5 hike in diesel prices, Rs.250 per LPG cylinder increase in the price of domestic cooking gas, and Rs.4 a litre in kerosene prices with immediate effect to cut the fuel subsidy bill by Rs.72,000 crore.

“Our focus for cabinet clearance would be related to subsidy-sharing,” Rae added.

He said the focus would be to ensure that upstream companies get about $65 a barrel on sale of crude oil, which is currently in the range of $40-42 a barrel.

“This would mean that we would be able to initiate more exploration activities. While we are buying crude oil at $110 a barrel, domestic companies should get at least $65 a barrel for investing in future exploration activities,” Rae said.

The ministry’s note to the cabinet would propose that upstream companies must be given an assured $65 a barrel on supply to oil marketing companies (OMCs). Beyond $65 and up to $100 they would have to offer an 85 percent discount per barrel price. If the price went past $100, the discount would be 90 percent on what they earned above $65.

The Parikh panel has suggested a slab-based formula for upstream share in subsidy. It had said the upstream contribution should be 40 percent if crude oil prices were below $80 a barrel and 40 percent if these were between $80-120 a barrel. It had further suggested adding 25 basis points to the share for each $1 a barrel increase beyond $80 a barrel. If prices were above $120 a barrel, the upstream contribution was suggested at half the crude oil price

Rae also said the government is planning a partial rollback of bulk diesel pricing.

The government had in 2013 opted for a dual pricing system for bulk and retail customers. Thereafter, the sales of bulk diesel had gone down from 18 percent of the overall diesel sales to 10 percent.

All state transport utilities currently depend on retail outlets, which leaves the railways and defence as the only bulk consumers.

  Government, higher diesel price, planning