After straightening out the subsidy issue with Oil Ministry in the presence of Prime Minister, the Finance Ministry today agreed to mete out a record Rs 100,000 crore towards diesel and cooking fuel subsidy in 2012-13 but wants pricing formula to be changed from current year to cut down the outgo.
Till now the Finance Ministry had given out a cash subsidy of Rs 55,000 crore, but now agreed to give Rs 40,000-45,000 crore more to cover for unmet revenue losses on fuel sale in the fiscal year ending March 31, 2013.
Oil Ministry had been pressing for early release of the remaining subsidy of 2012-13 fiscal as retailers Indian Oil , Hindustan Petroleum and Bharat Petroleum have to close accounts by month end. A loss of Rs 161,029 crore has been incurred in 2012-13 on the three retailers on selling diesel, domestic LPG and kerosene at government controlled rates which are way below market price. To cover this loss, the government has provided Rs 55,000 crore by way of cash subsidy and about Rs 45,000 crore was made good by upstream firms like ONGC.
As a revenue loss of about Rs 60,000 crore is remained. Another Rs 15,000 crore are expected to chip in from the Upstream firms and the rest had to come from Finance Ministry.
The issue of changing fuel pricing norm to export parity has been referred to an expert panel led by Kirit Parekh, said the Oil Minister.
The Finance Ministry wants petrol and diesel to be priced at a rate they can get in export market, rather than current practice of pricing the fuels after adding transportation and customs duty to the international price.
The difference between the Export Parity Price (EPP) being propagated by the finance ministry and the currently in vogue Trade Parity Price is about USD 3-4 per barrels.
"This is a matter referred to Kirit Parekh committee. We are to decide on the issue after receiving report from them," he added.
Changing to EPP pricing is likely to help Finance Ministry save about Rs 18,000 crore of subsidy.
The change is being opposed by the oil industry which says they pay customs duty on importing raw material (crude oil) and naturally should be allowed to charge the same on products they sell.
If EPP is implemented the private refiners like Reliance Industries and Essar Oil are likely to get a hit of Rs 2,500 crore on the 10.5 million tonnes and Rs 1,860 crore on 7.5 million tonnes of diesel respectively.
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