Event ReportsPublished on Feb 09, 2009
The Centre for Resources Management, ORF organised a focus group meeting on the need for reforms in pricing petroleum products on February 9, 2009 at its New Delhi campus.
Petroleum Product Price Reforms: Now is the Time

The Centre for Resources Management, ORF organised a focus group meeting on the need for reforms in pricing petroleum products on February 9, 2009 at its New Delhi campus.

A wide range of stakeholders from both the public and private sector participated in the meeting and shared their views. Mr Sunjoy Joshi who leads the Energy Group at ORF identified the key issue for deliberation to be the end of uncertainty and unpredictability in policy response to volatality in order to ensure that investments in energy and energy infrastructure kept pace with economic development, and ad-hochism was eliminated. He said that investments could not flow until long-term stability of policy became the norm and a level playing field was established for all players in the field.

The Chair of the session, Mr S C Tripathi, former Secretary, Petroleum, GoI emphasized autonomy for the Petroleum Regulator as the key means towards the above goals.

In his key note address, Professor Arjun Sengupta, well known economist and the Chairman of the National Commission for Enterprises in the unorganised sector argued that market rationality cannot be indiscriminately applied to petroleum product pricing in India, which had a huge number of people outside the formal economy. He acknowledged that predictability in policy as well as a level playing field is essential in the sector. He called for a formula-based approach in pricing petroleum products towards ensuring price stability for the end users.

Mr Surya P Sethi, Principal Advisor (Energy) to the Planning Commission drew attention to the close link between the issue of taxation and the issue of pricing petroleum products in India and underscored the complexity in reforming pricing without corresponding reforms in taxation.

Mr P Raghavendran, Vice Chairman, Petrofed, informed that China, which shared some of India’s social characteristics, had boldly linked petroleum product prices with international crude prices within a broad band. He sought clarification over the dilemma of redistributive interventions such as taxes and subsidies being imposed on the price of the same petroleum product. He called for subsidies to be supported by direct budgetary provisions rather than through ad-hoc adjustments.

Mr Dipankar Mukherjee, former MP, Rajya Sabha, who also served as a member of the Standing Committee on Petroleum & Chemicals argued in favour of a cost based approach to pricing petroleum products at the refinery gate as opposed to the existing trade parity pricing and emphasised the need for the Government to have the final say over petroleum product prices.

Mr Manish Tiwari, spokesperson for the Congress Party, favoured greater autonomy for the Petroleum Regulator as the means to introduce a greater degree of fairness in the industry. He said that there was no rationale for the Government to cede its sovereign power over taxation to a Regulator, but observed that subsidies concerned problems in public distribution systems and governance at the state level was the key to subsidy reforms. In his view, devolving pricing authority to the regulator could be a judicious measure as it would shield the Government of the day from political fall-outs.

Mr R P Sharma, President, Reliance LNG business, commented that the absence of provisions beyond authorisation of laying pipelines and city gas distribution in the Petroleum & Natural Gas Regulatory Act was a significant hurdle in heralding price reforms in the petroleum segment.

Mr M B Lal, Member, Appellate Tribunal (P &NG), agreed with Mr Sharma and added that notification of petroleum products and natural gas is matter for regulatory consideration. He called for greater transparency in the matter of sharing the subsidy burden through mechanisms such as oil bonds to reduce uncertainty in budgetary planning by public sector oil companies.

There was a consensus among participants on the need for policy makers to undertake measures that would correct the current pricing and subsidy regime that is distorting markets and straining the fiscal environment. It was suggested that ORF should draft a policy brief exploring alternatives to the existing structures.

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