Government declined to set up price stabilisation fund for petroleu

New Delhi, May 23 (UNI) The Government has rejected the proposal for the setting up of a " Price Stabilisation Fund" from the money raised through cess on crude to stabilise the prices of petroleum products in the country.

The recommendation for price stabilisation was made in the sixth report of the Standing committee on Petroleum and Natural Gas during the course of the 14th Lok Sabha and the Government's rejection is part of its Action Taken Report (ATR).

The report observed that cess and royalty form major components in the cost at production of indigenous crude oil. At present, cess is levied @ Rs 1800 per tonne under the provisions of Oil Industry Development Act 1974. The Oil Industry Development Board (OIDB) was set up in 1975 to provide financial assistance for the development of the Oil industry.

Annual cess collected amounts to nearly Rs 5400 crore. The Centre has collected a sum of Rs 55966.81 crore uoto March 31, last year by way of cess since inception. Out of this OIDB has received only Rs 902.40 crore till March, 2005.

The argument of Finance Ministry is that the definition of " oil Industry" encompasses all activities directly or indirectly connected with exploration, production and marketing of mineral oil and production of fertilisers/petrochemicals. They have even stated that the expenditure on " Oil Industry" has exceeded the cess collections. The committee, dismissed this argument as a far-fetched one. It is highly regrettable that large funds collected for a specific purpose to carry out oil industry developmental activities are not utilised for that purpose it said. The committee has already expressed its deep concern and strong objection to the objectives of such a levy in their First and Fourth Reports during the course of the same 14th Lok Sabha.

The committee again emphasised that there is no justification in levying cess if the amount generated from it is not being utilised for the sector and reiterate their earlier recommendation for the creation of " Price Stabilisation Fund " from the money collected from cess on crude oil to bring in stabilisation in the prices of petroleum products.

The report further said that a part of the cess amount may also be utilised to provide subsidy on kerosene and LPG.

The ATR says that this proposal was earlier referred to Finance Ministry for consideration who and the Ministry retused to set up price stabilisation fund on account of existing subsidy committments.

However, in view of the strong recommendation from the committee the issue has been again sent to the Finance Ministry.

ATR further pointed out that since the oil prices have been extremely volatile in the recent past and oil companies have not been able to pass on the full burden to the consumers resulting in under recoveries, it was felt that there is a case for establishing a " Price Stabilisation Fund" with funding from the cess on indigenous crude. As the matter is of financial implecation so it was sent to Finance, Public Distribution and Consumer Affairs Ministries and Planning Commission for concurrence. The finance Ministry has not agreed to this proposal for the setting up of the "Price Stabilisation Fund" on the ground that the existing subsidy commitments do not permit further commitments.

The committee pointed out that the royalty rates levied by State Governments in respect of the crude oil extracted from their respective jurisdiction, are substantial which result in enhancing the final cost of crude significantly.

During the 90's the royalty was collected at specific rates. Later, it was revised to an ad volorem rate of 20 per cent of the well head price.

At present, royalty is being levied at the rate of 20 per cent of the well head price for onshore and shallow water offshore and 10 per cent for offshore above 400 Meters. Though the provisions of Oil Fields Regulation and Development Act, 1948 permit royalty ollections upto 20 per cent of well head price, the committee expresses its desire that the Centre should persuade the State Governments to reduce the royalty rates so as to bring down the final cost of crude, thereby ultimately benefiting the customer.

The committee feels that if necessary the Oil Fields Regulation and Development Act may be amended and Government is considering this proposal.

The report pointed out that the various taxes and duties levied on products are responsible for their higher retail selling prices.

As of now, taxes which comprises customs, excise and State level duties are about 132 per cent of the basic price of the products in the country. The committee also found that among the developing countries, India has a higher share of taxes in the retail selling prices of products in comparison to most other countries.

The ATR says in order to formulate a long term pricing policy, the Government had constituted a high level committee to examine different aspects relating to pricing and taxation of petroleum products and the proposal is under consideration of the Government, the report added.

UNI/BKS ARB RN1932