Need To Provide Level Playing Field

PRLog (Press Release) – Mar 09, 2007 – New Delhi, March 8: There is growing unrest among the dealers and employees working in the retail outlets of private oil companies as their jobs and investments are under threat due to discriminatory policies of the Government which are heavily loaded in favour of public sector undertakings.  The threat is affecting nearly 65000 people employed in the sector and large number of dealers who had invested Rs. 1.5 - 2.0 crores each in these outlets.

These outlets were set up after the Government of India notified a new policy for deregulation and marketing of petroleum products at the market driven prices. This announcement on 1st April, 2002 declared that the consumer prices of motor spirit and high speed diesel will be market determined with effect from that date.  Consequent to this policy rights were granted to private players which made heavy investments in order to sell these products at market prices.

But contrary to this policy since mid 2004 the Government began to intervene and prevent PSU marketing companies from increasing domestic prices as a result of hike in international prices.  The Government also compensated PSU marketing companies through budgetary support in terms of oil bonds and discount given by upstream players like ONGC.  This non transparent process compensated PSUs for about 1/3 of their under recoveries on Motor Spirit and High Speed Diesel in 2005-06 (Rs. 5931 crores out of Rs. 14964 crores) and fully in 2006 – 2007 (est. Rs. 20500 crores).

This private companies were left with no choice but to either absorb huge losses by continuing to sell MS and HSD at same price as public sector undertakings or reduce volumes through price increase.   Any attempt to sell products at prices higher than PSU oil companies resulted in no sale.  The consumers are also suffering because they are forced to buy from PSUs outlets only.  This is also increasing the subsidy burden on the Government as PSUs have to sell larger volumes.

The only solution of the problem lies in scrapping subsidies and taxes that co-exist along with subsidized LPG and PDS Kerosene. This virtually eliminates the possibilities of participation by private sector.  One time reduction in Excise duty can enable Government of India to eliminate subsidies in all forms and also help in reviving private sector and assure in better customer service through competition.

The impact of any subsequent increase in International prices can be countered by reducing Excise duty by Rs. 300/KL on HSD and Rs. 420/KL on MS for every dollar per barrel increase in international prices or alternatively in steps of Re 1/litre for both MS and HSD for every 3 USD/Bbl increase in International prices.

The other option is to pay subsidy to the private companies also as done in the case of PSU marketing companies.  Another alternative is to have fix subsidy per litre which can be adjusted by oil marketing companies in both the sectors on duty payments based on Excise paid with gate passes for removal of products from refineries for domestic consumption.  This is the pattern followed in the case of Fertilizer Industry.