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Balaji C. Mouli

NEW DELHI, March 18

THE forthcoming Exim Policy is set to continue with the existing system of canalising procurement of petrol and diesel through State trading companies, according to officials.

This means that if any corporate, particularly a multinational such as Shell sets up a retail outlet and imports products from its Singapore refinery for retailing though these outlets, they would require to canalise it through Indian Oil Corporation (IOC).

The Government sources, however, said that a case for exemption would be considered if corporates apply for a relaxation.

The Petroleum Ministry has recommended continuance of this system to avert smuggling of diesel from Iran, Iraq and Bangladesh which amounts to around 0.5 million tonnes per annum, according to official estimates.

The canalising system is not of much relevance till the dismantling of the administered price mechanism from April 1, since only public sector oil companies can market transportation fuels.

However, in the post-APM period, private companies can also set up retail outlets following an application with the Government.

On April 1, on dismantling of the APM, the public sector oil marketing companies will be free to set retail prices of transportation fuels.

However, the oil marketing companies are unlikely to deviate significantly from the present pricing.

At present, the pricing equalises transportation costs as well as the marketing margins across regions.

The `soft landing approach' will mean that differential consumer pricing based on actual costs and returns across regions is not likely to take place till there is significant presence of a private player in the retail segment, according to industry observers.

Further, this is likely to happen with the privatisation of Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd, both of which have a 22 per cent share in the retail segment.

The Finance Ministry is unlikely to intervene through reduction in taxes or levies on petro products unless crude prices hover in the $24 per barrel band beyond May this year, according to officials.

Owing to the high crude prices, the public sector oil marketing companies are currently not recovering their costs from the consumers. Till April 1, this reflects as a receivable on the balance sheet of the oil companies and earns them an interest of 10.5 per cent.

Beyond this period, there will be no compensation and the under-recovery will have to be made good from the consumers. The Government's only instrument to regulate consumer prices in the post- APM period is through intervention on the taxation front.

Hence, in the absence of a reduction in tax or levies as in the case of petrol where a Rs 6 per litre cess has been imposed, the oil companies will have no option but to hike consumer prices to make good the under recoveries at a later stage.

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