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India takes lessons from Thailand before opening petroleum marketing

Taking a lesson from the Thai and Philippine experiences, India plans to set up a regulatory mechanism before opening up the petroleum marketing sector in April 2002 to protect domestic consumers' interests.

"Experiences of Thailand and the Philippines have shown substantial increase in the marketing margins and dealers' commissions by the companies in the initial stages of freeing consumer prices of transportation fuels. A regulatory mechanism is therefore required to be established before opening the market," said Petroleum Minister Ram Naik on Thursday.

Speaking on the roadmap to deregulation of the Indian petroleum industry at a conference organised by the Tata Energy Research Institute in New Delhi, Naik said a regulatory mechanism is essential in the interest of consumers in non-urban markets where competition is not likely for some time.

"It would also help to cushion domestic prices against the impact of volatile international prices."

In the free market scenario, the key issue worrying the petroleum and finance ministries is delivery of petroleum products at an equitable price in all areas and reaching the subsidy to domestic consumers.

Listing several issues that are being worked out in the roadmap to opening up the petroleum marketing sector, Naik said, "Rationalisation of state taxation is necessary for level playing field."

The fact that companies will try to reduce costs by maintaining minimum commercial inventories, said Naik, may result in "dry outs especially when there is some dislocation in supplies of products."

India's experience of reaching subsidy to consumers whether in food through a public distribution system or fertiliser to farmers has not been good, Revenue Secretary S Narayan said, emphasising that lot more issues were at stake in opening up the petroleum sector.

Narayan said the oil pool deficit "as a management of numbers is manageable, but administrative and implementation issues arising out of free market needs to be looked at carefully."

The oil pool account managed currently by the petroleum ministry was set up to cross subsidise petroleum products like kerosene and liquefied petroleum gas. By March 31, 2002, the oil pool deficit is expected to reach Rs 145 billion.

Once the government lifts control on marketing of petroleum products, the subsidy on kerosene and LPG for domestic consumers is to be managed from the Union budget.

"What is to be worked out is how the proposed 33 per cent subsidy on kerosene and 15 per cent on LPG to be retained after April 2002 will be delivered to the consumers at home," said Narayan.

By April 2003, the finance ministry hopes to bring in a three-tier standardised customs duty for all products. The upper limit is to be 20 per cent customs duty. There will be different slabs for intermediate and raw materials.

"The petroleum sector will have to fit into the larger policy of customs tariff," said Narayan, adding that a committee is currently working on the customs duty on intermediaries and raw materials.

At the same time, the petroleum ministry would have to work out a pricing mechanism to ensure that the 'budget to budget subsidy averages out to the fixed subsidy for kerosene and LPG'.

A long-term pricing policy for supply of natural gas for industries is another issue that need attention, Narayan stressed.

With market forces to decide on the price of petroleum products, he said,

"From a level of consistency of prices we are looking at inconsistency of price."

Indo-Asian News Service

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