The Telegraph
Since 1st March, 1999
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Reliance has its way on fuel prices

New Delhi, June 4: Reliance Industries has finally managed to get its way with the national oil companies agreeing to pay import parity prices for LPG and kerosene that they are now picking up from the Jamnagar refinery.

A senior petroleum ministry official told The Telegraph that the PSU oil firms — Indian Oil, Bharat Petroleum and Hindustan Petroleum — will pay import parity prices from this month so that there are no “current dues”. This will be in accordance with the terms of the contract that has been signed with Reliance, he added.

He said a formula was also being worked out to clear the earlier dues of around Rs 600 crore. These arrears had accumulated as the PSUs had stopped paying import parity prices to Reliance last year. Since they were being forced to sell LPG and kerosene at prices below the market price and were not being fully subsidised by the government, the PSUs had started losing money on these sales.

To plug the cash drain, they had decided not to pay import parity prices for LPG and kerosene. Gail and ONGC also market LPG and these two companies were not being paid import parity prices either.

The official government policy states that a subsidy would be provided on kerosene and LPG at a flat rate and any increase in international prices beyond this limit would be passed on to the consumer. However, in practice, the government did not go in for any increase in the price of these cooking fuels even in the face of soaring international prices as it would have eroded the vote-bank of the ruling party.

Towards the fag end of the last fiscal, the government mopped up Rs 2,600 crore from the oil PSUs which was to be paid back to them for the subsidy arrears. But this sum was used to keep the runaway fiscal deficit in check and the oil firms were left high and dry.

The government has set aside a little over Rs 4,00 crore for the subsidy on LPG and kerosene during this fiscal. This is even less than the amount that had been set side for this purpose last year.

The subsidy that the oil companies get on a cylinder of LPG is around Rs 70 while that on kerosene works out to about Rs 2.40 per litre.

However, there is a huge gap between international prices of LPG and kerosene and the retail selling prices of these cooking fuels. It would require an over Rs 150 hike in the price of an LPG cylinder and Rs 5 per litre increase in the price of kerosene to bridge this gap.

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