The petroleum ministry and state-run oil majors Tuesday made it clear they have problems with most of the recommendations of a high-powered committee on fuel pricing, from change in pricing formula to imposition of special oil tax.
At an oil companies CEOs' conclave chaired by Minister of Petroleum and Natural Gas Murli Deora, the oil majors made it clear they are "uncomfortable with switching over from state parity formula to export parity model", Petroleum Secretary RS Pandey said after the meet.
Trade parity is a mix of import parity and export parity prices, with more weightage given to the former; under import parity, oil price will be equal to the world price plus transport, tariff and other costs the customer would bear if they were to import.
But under the export parity model, as proposed by the BK Chatruvedi committee on fuel pricing, the price is set equal to global rates, minus any transport, tariff (in the destination market) and any other costs the supplier would incur if they exported.
"The views of oil companies (on the Chaturvedi committee report) have been discussed. They will submit it to us in writing. These will be taken up in due course," added Pandey.
Indian Oil Corp chairman Sarthak Behuria said among other disadvantages, standalone refineries would suffer losses under the export parity model.
He claimed that with 75 per cent of crude oil being imported, even domestic producers were given near import parity rate.
Behuria said this would reduce refinery margins and adversely effect standalone refineries, which have major upgrade plans. "These investments will not be met," he said.
Oil and Natural Gas Corp chairman RS Sharma said he supported an equitable and transparent system of deciding the share of the burden of under-recoveries.
He said the current system was too ad hoc and posed problems during tax calculation.
"We are only requesting that mechanism should be such that is acceptable and equitable," Sharma said.
He said ONGC had contributed Rs 220 billion to bridge the gap of under-recoveries of oil marketing companies in 2007.
This year, ONGC's share of contribution to under-recovery for the first quarter is Rs 98.11 billion.
There seems to be equally negative reaction to other important recommendations of the Chaturvedi committee report, including the monthly revision of diesel and petrol, windfall tax and imposition of special oil tax on crude produced from oil fields awarded before 1999.
At the meeting, Deora said petroleum products should be "priced in a consistent manner under a long term policy".
"It is also essential that economic pricing is blended with social responsibility so that the oil sector continues to function and service the oil needs of the economy," he added.
The minister said that the estimated under-recoveries for 2008-9 would be over Rs 2,000 billion, compared to Rs 771.2 billion in the last fiscal.
"Our Navratna companies are now incurring losses, which is a matter of concern for us," Deora said, pointing out that the price increase in June did not pass on the full impact of global price rise to the consume.