'Subsidies on LPG should be charged to budget'

New Delhi, Sept 3: Subsidies on LPG and kerosene should be charged directly to the budget and not loaded on to the back of oil companies, Planning Commission Member Dr Kirit Parikh has said.

The Petroleum and Natural Gas Ministry could bid out available subsidies for LPG and kerosene to obtain the lowest price at which a given amount of these products could be supplied to a defined number of targeted beneficiaries or on the basis of the minimum subsidy at which these could be supplied in specified quantities and at specified price to the targeted number of beneficiaries, Dr Parikh said.

The high price difference betwen keorosene and diesel (Rs 21 per litre in 2005-06) leads to large-scale diversion of kerosene from the public distribution system to adulteration of diesel.

Dr Parikh said the differential pricing of LPG for domestic and commercial use leads to leakages, increasing the burden on subsidies.

To ensure that the subsidised supply of kerosene and LPG only goes to the targeted beneficiaries, Dr Parikh said the possibility of introducing smart cards should be explored.

'' The mechanism for subsidised supply of kerosene and LPG needs to be revised to make it transparent and directed only to the targeted beneficiaries'' Dr Parikh said.

For this purpose, the possibility of introducing a coupons or smart cards directed to the intended beneficiaries should be explored, Mr Parikh said in his latest report on the Integrated Energy Policy. He said this would eliminate dual prices for kerosene and LPG in the market.

On pricing of petroleum products, Dr Parikh said the full price competition at the refinery gate and at the retail level for all petroleum products should be pursued.

He said differential pricing in different markets may be permitted to reflect the cost of supply.

''State governments may choose to subsidise prices in remote areas in a transparent manner through their budgets.'' Similarly the central government could subsidise certain strategic consumption or lifeline enrgy consumption through its budget, he added. Till such competition is introduced according to Dr Parikh the pricing mechanism of petroelum products on import parity basis need to be replaced by a trade parity basis, and the products for which the country is a net exporter/importer over a specified time period should have export/import parity prices.

A product for which the country is self-sufficient should have a price in between the two depending on the price elasticity of demand for the product in the domestic market, he said.

Moreover, the domestic economy may have to be protected against short-term volatility in the international market caused by speculators and manipulators, Dr Parikh, who is also the Chairman of the Expert Committe on Integrated Energy Policy, said.

The government had said the oil marketing companies will bear the burden arising from rise in international crude oil prices. However, the refiners, who have been making handsome margins, would be asked to chip in some form of discounts.

Petroleum and Natural Gas Minister Murli Deora had said the government along with oil companies had decided to absorb over 87.5 per cent of this burden, leaving only the balance 12.5 per cent to be borne by the consumers by way of increase in petrol and diesel prices.

Finance Minister P Chidambaram had tabled supplementary grants for issue of Rs 14,150 crore of oil bonds to public sector oil firms for their under-recoveries on fuel sales during the first two quarters of 2006-07.

To help smoothen any hard landing due to huge under-recoveries, the government is going in for a combination of tax cut, issue of oil bonds to bridge under-realisation on petrol, diesel, LPG and kerosene, and upstream oil firms like ONGC extending discounts on crude they sell to refiners, for bridging the Rs 73,500 crore revenue loss expected this fiscal on selling fuel below the cost.

UNI