Business
Sinha, Naik to meet on oil sector deregulation
By Sushma Ramachandran
NEW DELHI
FEB. 9.
In a bid to resolve differences over the dismantling of the administered pricing mechanism (APM) in the oil sector, the Finance Minister, Yashwant Sinha, and the Petroleum Minister, Ram Naik, are expected to hold a meeting on Monday. This is despite the decision to refer certain crucial issues relating to subsidy on cooking gas for a final decision to the Prime Minister, Atal Behari Vajpayee.
Apart from this specific problem, there are a whole range of matters to be decided on oil sector deregulation and the nitty-gritty of these will have to be worked out through inter-ministerial discussions. The areas where Mr. Sinha and Mr. Naik are expected to hold discussions at the next meeting are those where differences still remain between the two ministries. These include levels of excise and customs duties, the nature of subsidies, fixation of maximum retail prices and transport subsidy for far-flung areas.
Official sources are confident, however, that the Government will be able to meet the target of dismantling the oil sector APM by April 1. They discount suggestions that the Petroleum Ministry is not in favour of dismantling the APM. In fact, they stress that it is keen to ensure that consumers' interests are paramount rather than merely revenue considerations and also that the vast experience of the oil companies is drawn upon while taking any decisions in this sector.
The Finance Ministry, on its part, feels the need to contain the fiscal deficit has to be kept in mind. Thus, it has remained adamant on the need to curb subsidies, an issue which is likely to be resolved only at the highest level. In the case of LPG, it has suggested that subsidy should be a fixed sum to enable the amount to be factored into budget projections. It has thus proposed that the subsidy will be available for only one cylinder per consumer every month. Any consumer using a second cylinder will be penalised by having to pay a higher price. The Petroleum Ministry has objected to this proposal, pointing out that in the experience of oil companies, this would only lead to dealers issuing cylinders in different names to the same consumers. It has also pointed out that imposing more controls on retailing of oil products defeats the entire purpose of oil sector deregulation.
The differences between the two ministries also extend to the fixation of excise and customs duties at specific or ad valorem rates. The Finance Ministry seeks to continue the existing system of ad valorem rates _ percentage wise fixation- while the Petroleum Ministry is keen for a shift to specific rates. The argument in favour of specific rates is that the linkage with import parity prices after the APM dismantling may create excessive volatility for the consumer. An increase in world prices of crude or products would not just mean a rise in the ad valorem duty rates but also the consequential levies such as sales tax and other local duties. This could have a spiralling effect on prices for consumers in case of a rise in international prices. Besides, it is felt the specific rates would provide some stability in revenue collections for the Exchequer. The provision of transport subsidy for far-flung areas also has to be sorted out as the Finance Ministry seeks to limit this to selected regions. The Petroleum Ministry, on the other hand, is in favour of extending it to entire states. It notes that otherwise, prices would be much higher in some parts of a single state like Himachal Pradesh or Jammu and Kashmir. The result could be consumers buying products from neighbouring states which could affect the oil companies' retail outlets.
Sources stress that Monday's meeting is likely to be the last round of discussions since there is not much time till the budget when the Finance Minister will have to introduce enabling provisions for excise and customs duty changes in the oil sector.
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