Chaturvedi committee recommends oil price hike

It will hit hard to general public if government accepts the recommendations of B K Chaturvedi committee- set up by Prime Minister to study the financial health of Public sector oil companies- as the appointed study panel has recommended such a ‘horrible’ proposal, which would never likely to be fruitful viewing the current political and economic scenario.

According to sources, the three-member committee constituting Saumitra Chaudhuri- the member of Prime Minister's Advisory Council, Arvind Virmani, the government's Chief Economic Advisor, and B K Chaturvedi, member of former planning commission has recommended to hike the petrol prices step-by-step by Rs.2.50 per month till March 2009 and diesel prices by Rs.0.75 till next 24 months to meet the production cost of petrol and diesel respectively.

The hike in the petrol and diesel would be levied by imposing new ‘special oil tax’ on oil produced from fields awarded prior to the advent of New Exploration Licensing Policy (NELP) in 1999. The tax should start at USD 75 per barrel, as per panel recommendation.

Besides, the committee has also suggested restricting LPG cylinders sold at subsidised rates to six per connection in a year and phasing it out over a three-year period.

The committee has also recommended to charge a 'Metro Extra' tax of Rs 2 per litre on diesel, in four installments in large cities covering Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad, Kanpur, Pune, Surat and Agra, as the fuel was being used in expensive cars.

The study panel has also suggested temporary reduction in excise duty on petrol by Rs.10 per litre from Rs.13.75 besides slashing import duty on petrol and diesel from 2.5 to zero, similarly like crude oil, LPG and kerosene.

At present, the PSUs oil companies are selling petrol at Rs. 11.60 per litre loss and diesel at Rs. 23.23 a litre loss.

To cover this loss and to equalize it with production cost, committee has suggested to impose special oil tax on oil producers. As per sources, the committee has suggested to impose 100% tax on all revenues of public sector oil producers like ONGC and OIL, when the crude oil price crosses $75 per barrel while for the private oil producers like Reliance and Videocon, are reportedly required to pay tax at 40% of revenues, for the same price level of crude oil.

At present, to cover the heavy losses of PSUs, government issues oil bonds, but for the private players, government usually doesn’t not support.

The Union Petroleum Minister Murli Deora has not released any comments about this recommendation so far, however, he quoted as saying, ‘the suggestion are still under scrutiny and government will thoroughly analyse the situation and study before implementing it.’

But, the experts believe that it is unlikely to be ruled out as the election is almost nine months far and inflation is continuously touching new heights. The move of implementing this recommendation ‘thoroughly’ would reflect the anger of the public and UPA government can face a critical situation in the next election.