The Kirit Parikh Panel, which had been formed by the Prime Minister Manmohan Singh in May this year, to break the impasse on the method of calculating the under-recoveries suffered by oil marketing companies (OMCs), has suggested that these be calculated on the basis of export parity pricing, a formula which had been suggested by the Finance Ministry.
According to sources privy to the development, the panel is also said to have suggested that while calculating the under-recoveries on export parity price formula, the coastal charges should also be included in it. The cost incurred in transporting oil from the coast to the refinery is normally termed as the coastal charge. The Prime Minister had set up the panel after there was a deadlock between Finance Ministry and the Petroleum Ministry on the method for calculating the under-recovery losses.
While Petroleum Ministry had suggested taking into account import parity price, the Finance Ministry was of the view that export parity price should be the basis for it saying that it would save a lot of money for the exchequer. Finally the Prime Minister had to step in and after chairing a meeting with both the ministries on May 22, he decided to set up the committee under the chairmanship of former Planning Commission member Kirit Parikh to resolve the impasse.
As of now, the under-recovery burden is calculated on the basis of import parity pricing, which consists 80 per cent of import parity price and 20 per cent export parity price. However, the logic given by the Finance Ministry while batting for export parity pricing was that it would significantly reduce under-recoveries as according to the import parity price formula, customs duty of 2.5 per cent also gets included as under-recoveries, without actually adding to the Government’s pocket.
With the panel having accepted the export parity pricing formula, the Government would now hope to save around Rs 20,000 crore annually as this would exclude the customs duty slab, sources pointed out. At the same time though the panel’s suggestion of including coastal charges may hike albeit marginally the burden on the Government, yet as compared to the import parity pricing formula, the enormity won’t be that much.
During the May 22 meeting called by the Prime Minister, it was decided between Finance and Petroleum Ministries that the existing formula of import parity pricing would be followed for distributing the under-recovery payments for the last quarter of FY13. However for future, it was decided that the payment would be made after the Parikh panel comes out with its report.
For the first half of 2012-13, the Finance Ministry had paid Rs 55,000 crore. For 2012-13, State-run oil marketing companies Indian Oil, Hindustan Petroleum and Bharat Petroleum reported Rs 1,61,029 crore of gross under-recoveries. This was significantly more than the under-recoveries of Rs 1,38,541 crore in the previous financial year.