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Oil Ministry not for price stabilisation fund — `Cess funds can be used to share subsidy burden'

Richa Mishra

New Delhi , Aug. 28

WHILE declining the proposal for the creation of a price stabilisation fund, the Petroleum Ministry has said that it is open to the idea of using the cess collected under the Oil Industry Development Act (OIDA) towards sharing the balance subsidy burden. The major portion of subsidy burden is currently being borne by the oil companies.

For the quarter April-June 2005, the burden of subsides to be shared by the upstream and downstream companies is estimated at Rs 6,514 crore (Rs 3,257 crore each).

The proposal for creation of a price stabilisation fund had come from the Parliamentary Standing Committee on Demands for Grants 2004-05 of the Ministry. In its latest report, the committee had suggested that a price stabilisation fund be created to bring stability in prices of petroleum products by using money collected from the cess on crude oil to act as a cushion in case of reduction in import and excise duty on liquefied petroleum gas (LPG), kerosene (SKO), petrol and diesel, as well as to provide subsidy on LPG and SKO.

On why the proposal was not acceptable to the Ministry, he said that the existing price band mechanism for petrol and diesel has an in-built mechanism to allow variations in product prices in tandem with import parity, hence, a price stabilisation fund was not necessary.

However, the Ministry has accepted the committee's suggestion pertaining to utilisation of cess on crude oil towards meeting the remaining subsidy burden, after taking into account the budgeted subsidy that is currently borne by oil public sector undertakings, a senior Petroleum Ministry official said.

The Left allies of the United Progressive Alliance Government had also been in favour of a price stabilisation fund so that the hike in international crude price could be balanced.

The Government has collected a net cess amount of about Rs 55,967 crore as on March 31, 2005. The cess on crude oil was imposed with the objective to provide financial assistance to the oil industry for activities, such as production of mineral oil, and refining, marketing of all products downstream of an oil refinery

On the present subsidy per cylinder of LPG and per litre of PDS SKO during April-December 2005, the official said that subsidy from fiscal budget on PDS SKO stood at Rs 0.82 per litre, under recoveries to the oil companies on the product stood at Rs 8.14 per litre and the total subsidy to the consumer was Rs 8.96 per litre. For the domestic LPG, subsidy from fiscal budget stood at Rs 22.58 per cylinder, under recoveries to the oil companies was at Rs 129.18 per cylinder and total subsidy to the consumer stood at Rs 151.76 per cylinder.

In the Budget estimate of 2005-06, subsidy on domestic LPG and SKO under public distribution system (PDS) is Rs 3,600 crore. For 2003-04, subsidy on domestic LPG and SKO under PDS was set at Rs 6,300 crore. As against this, both the revised estimate and the actual estimate for the year (2003-04) were Rs 6,292.44 crore. In 2004-05, the Budget estimate and revised estimate amount has been fixed at Rs 3,500 crore.

In addition to this normal subsidy scheme for PDS SKO and domestic LPG, there is also a freight subsidy scheme for these products. This is to mitigate the impact of high transportation cost in the selling price of these products in far-flung areas, he said.

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