Government to set up another panel on oil pricing (Lead)

The government will set up another expert group on oil pricing, barely a year after the B.K. Chaturvedi committee had submitted its report that linked domestic prices of petroleum products to international rates.

Finance Minister Pranab Mukherjee announced in his budget speech Monday that an expert group would be set up to “advise on a viable and sustainable system of pricing petroleum products”.

The details will be announced by the petroleum and natural gas ministry.

“It is important to recognise that with almost three-quarters of our oil consumption met through imports, domestic prices of petrol and diesel have to be broadly in sync with global prices of these items,” Mukherjee said.

Initially, it was expected that the budget would announce decontrol of oil prices.

Now, Mukherjee's statement indicates that the government was interested in a market-oriented policy on pricing of petroleum products, but it was in no hurry to do so.

In 2008-09, the finance ministry issued oil bonds worth Rs.71,292 crore (Rs.712.9 billion) to state oil marketing companies to compensate them for their losses in selling petroleum products at subsidised rates.

Besides, upstream oil sector firms also contributed Rs.32,000 crore in price discounts.

Last week, the government had come under pressure from within the Congress party and outside after it raised the prices of petrol and diesel by Rs.4 and Rs.2 a litre, respectively.

The increase came after it had decreased prices in December 2008 and January 2009. The last upward revision in price was in June 2008, before oil prices reached a record $147 a barrel the following month.

After that, prices dropped drastically to about $40 a barrel, before again climbing for the last few months.

A three-member committee, chaired by former cabinet secretary B.K. Chaturvedi, had last August submitted its report to the Prime Minister's Office, which called for aligning the prices of petrol and diesel with the international market prices within one year.

It had also suggested a special tax on upstream companies earning revenue on oil price of $75 a barrel and above.

But the report went into cold storage, with the government unwilling to take any action with the general elections a few months away.

Last updated on Jul 6^th, 2009 at 17:24 pm IST--IANS