Petro hike on hold, Govt may revert to price fixing

The Congress government is not likely to raise prices of petrol and diesel when the next review comes up on June 15. Instead, it plans to us...

The Congress government is not likely to raise prices of petrol and diesel when the next review comes up on June 15. Instead, it plans to use that time to work out a ‘‘composite package’’ that would include going back to the era of administered pricing mechanism (APM).

In fact, Petroleum Minister Mani Shankar Aiyar indicated as much in a letter to Prime Minister Manmohan Singh last week, sources said.

Under APM, prices were fixed by the government with petrol and aviation turbine fuel classified as ‘‘luxury’’ items and priced higher to subsidise diesel, kerosene and LPG—fuels for the ‘‘farmers and the masses.’’

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Individual cash flows of each product was then included in a macro Oil Pool Account to take care of this cross-subsidisation.

The APM was discontinued in April 2002 as per the timeframe approved by the Congress-backed UF government. On paper, oil companies are now free to raise or lower prices each fortnight to align them with the global price trend. In reality, however, even the NDA factored politics in petro prices.

‘‘Total dismantling (of APM) was an alleged dismantling,’’ Aiyar told reporters today indicating that this Government would legitimise such a mechanism.

However, when asked by The Indian Express if he was considering reverting to APM, Aiyar declined to comment.

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Sources said that in his letter to the Prime Minister, Aiyar has proposed a ‘‘Price Stabilisation Fund’’ (similar to the oil pool account) created by mopping up the extra price crude oil producers earn each time global prices cross a benchmark price, say $25 a barrel.

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Suggested measures by Aiyar include marginal reduction in import duty on products without lowering the domestic protection barrier.

Since most products are no longer imported, there would not be much loss to the national exchequer, sources said, but would lower consumer prices which are at import parity.

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At the press conference, Aiyar said a decision on consumer prices of petroleum products would take into account what the Finance Minister does in the Budget, due to be presented in the first week of next month. ‘‘That is a parameter that must be fully taken into account in determining what steps to take,’’ he said.

He said that before finalising the package that would address petroleum prices, it would be discussed with the members of the United Progressive Alliance.

‘‘If not the nitty-gritty, the broad approach will be discussed with the coalition parties,’’ Aiyar said.

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