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Global cue to set diesel price

New Delhi, Dec. 25: The Twelfth Five-Year Plan (2012-17) draft proposes to align domestic diesel prices with global rates.

The National Development Council (NDC), which meets on Thursday, will adopt this proposal along with several others, following which the government is expected to take crucial decisions on the prices of petroleum products.

There are already indications of a further hike in diesel prices to cut down on the oil subsidy bill.

State-owned oil companies now lose Rs 10.03 per litre on diesel and are expected to post an under-recovery of Rs 1.67 trillion this fiscal for selling diesel, domestic cooking gas and kerosene at subsidised rates compared with a revenue loss of Rs 1.38 trillion in 2011-12.

While Prime Minister Manmohan Singh heads the NDC, all chief ministers and cabinet ministers are members.

“Operationalise a road map to move petroleum product prices received by marketing companies to prices aligned with global prices. This may not be possible immediately, but it can be achieved by the end of the Twelfth Plan for diesel and petrol,” the draft plan document said.

The Prime Minister has recently stressed the need to address the under-pricing of petroleum products in the wake of the ballooning subsidy bill.

In September, the government had hiked diesel prices by Rs 5 a litre and limited the supply of subsidised domestic LPG to six cylinders per year. This came weeks before the Vijay Kelkar Committee recommendations on fiscal consolidation were made public.

The Kelkar panel has recommended cutting down half of the per unit diesel subsidy by the end of this financial year and the remaining over the next year.

The oil subsidy outlay after the first supplementary demands for grants is about Rs 72,260 crore during 2012-13.

According to the draft plan, revenue losses suffered by the PSU oil firms may affect their ability to mobilise funds for new projects in the absence of proactive measures.

Total under-recoveries of oil PSUs amounted to Rs 4.43 trillion during the Eleventh Plan period (2007-12), which is expected to double to over Rs 8.32 trillion during the 2012-17.

“If no further adjustment occurs, and if global prices stay at the present level, total under-recovery in the Twelfth Plan period will be over Rs 8.32 trillion, which is simply not viable,” the draft plan said.

At present, the government compensates the PSU oil companies for their losses in the form of subsidy. Upstream firms such as ONGC, Oil India and GAIL (India) Ltd also share the subsidy burden by way of discounts on the sale of crude and gas. The final bailout package includes release of funds by the finance ministry towards meeting the under-recoveries.

Adding to the woes, the draft projects the demand of petroleum products to increase at an annual rate of 4.7 per cent during the Twelfth Plan.

There will be an increase in consumption “from 148.3 metric tonnes in 2011-12 to 186.8 metric tonnes by 2016-17. The demand for diesel will continue to be dominant followed by petrol and LPG,” it said.

The Planning Commission, which has prepared the draft document, has estimated that oil production during the Twelfth Plan is likely to rise marginally and then decline 5 per cent by the end of the plan period.

“As a result, import dependence in petroleum products is expected to increase from 76.6 per cent at the end of the 11th Plan period to 77.8 per cent by the end of the 12th Plan,” it said.

 
 
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