The Hindu : Excise duties on petro products may be cut

Online edition of India's National Newspaper
Friday, Mar 29, 2002

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Excise duties on petro products may be cut

By Our Special Correspondent

NEW DELHI March 28. The Government may consider reducing excise duties on petroleum products such as petrol and diesel to prevent any rise in prices after April 1. This would be necessary since international crude prices have risen since the budget was presented last month.

Disclosing this here today, the Petroleum Minister, Ram Naik, said excise duties were one of the instruments to be used in case of extreme volatilities in global crude prices. As a watchdog in this sector, he would move the Finance Minister on this issue whenever the situation required.

Addressing a press conference to outline the market scenario after the administered pricing mechanism (APM) for petroleum products is dismantled on April 1, he felt there should be a smooth switch over to the new system by ensuring price stability.

While stressing that prices of products would now be market-determined, he said that `ideally' revisions should not be too frequent.

He indicated that for the time being, prices would not be altered for three months after dismantling the APM.

Referring to the rise in international crude prices after the budget was presented, he noted that this would put pressure on the oil companies to raise prices.

But in case excise duty adjustments were made, it would be possible to maintain price stability for at least a few months.

The subsidy estimates made in the budget had been formulated on the basis of crude oil prices ranging from $ 20 to $ 22 a barrel but these had now risen to nearly $ 25 a barrel.

Regarding subsidy levels, Mr. Naik said this was currently Rs. 90 a cylinder for LPG and Rs. 3 a litre for kerosene.

This amounted to a 34 per cent subsidy on LPG and 30 per cent for kerosene. These subsidies would be phased out over the next three to five years.

In a formal notification issued here today, the Government dismantled the APM and announced that consumer prices of petrol and diesel would become market-determined. PDS kerosene and domestic LPG would carry subsidy at a specified flat rate basis which would be borne by the Consolidated Fund of India.

After adjusting the flat rate of subsidy, the retail prices of these subsidised products would vary with the price of oil in the international market.

The notification said the Oil Coordination Committee would be abolished and oil pool account would be wound up. The outstanding dues of the oil companies against the oil pool account would be liquidated by issuing Government bonds to the companies. In addition, a petroleum planning and analysis cell would be set up in the Petroleum Ministry.

Marketing of retail products would be deregulated with petrol, diesel and aviation turbine fuel being allowed to be marketed by private companies. On the supply side, to ensure there was no disruption in availability of products, the oil companies had finalised product supply and exchange arrangements.

Mr. Naik expressed confidence that with these arrangements, a smooth transition from the administered pricing to the free market regime would be achieved.

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