MAY 31, 2005, Business Standard

Attacking the government for not being “transparent” in fixing petroleum prices, an NGO, Cuts, on Monday said the oil subsidy burden was “exaggerated” and there were “distortions” in calculating LPG and kerosene subsidies.

“The claim of huge subsidy burden on petroleum products and bleeding oil companies are exaggerated, and most of the burden is passed on to the consumers,” Cuts Secretary General Pradeep Mehta said at a finance ministry meeting with various stakeholders to get inputs for preparing a roadmap for a new focused subsidy regime.

He said the government collects about Rs 6,000 crore as cess on domestically produced crude oil and bears an equal amount in the form of petroleum subsidies.

“Over the past three decades, the government has collected about Rs 50,000 crore as cess and almost all of it has gone to the coffers of the finance ministry. The cess amount now seems to be an implicit arrangement of meeting the petroleum subsidy burden,” Mehta said.

The cess was introduced in mid-70s to provide financial assistance to state-owned companies.

Slamming too much intervention, Mehta said though the administered price mechanism was abolished in March 2002, the government continued to play a major role in determining prices of petroleum products and there was absolutely no transparency in their pricing.

He said even the method of calculating subsidies on LPG and kerosene was distorted, as it was based on import-parity pricing of petroleum products and not on the basis of unrecovered costs, which was the appropriate figure for calculating subsidy.

Moreover, this pricing system allowed oil companies to factor in Customs duty to arrive at the import parity prices, Cuts said.

Since the country does not import petrol or diesel but crude oil, the amount collected as notional customs duty, estimated at Rs 10,000 crore goes to bolster the financials of oil companies, he added.