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Oil pool deficit may cross Rs 190 bn by fiscal end

Pradeep Puri

The dismantling of the administered pricing mechanism in the petroleum sector by the end of the current fiscal is being threatened by the burgeoning oil pool deficit, expected to cross Rs 190 billion by March 31, 2002.

The finance ministry is in a fix since in case the APM is dismantled, the oil pool deficit would have to be shifted to the general Budget. The ministry fears that pushing up the fiscal deficit by adding another Rs 190 billion to it would tell on the health of the economy.

The oil pool deficit, which was to the order of Rs 125 billion on March 31, 2001, is estimated to go past the Rs 190-billion mark in case international prices of crude oil rule around $23-24 a barrel and the domestic prices of controlled petroleum products are not raised. Currently, the prices rule at around $28 a barrel.

To somewhat mitigate the problem, the finance ministry has asked the petroleum ministry to "settle or recover" an excess payment of around Rs 63 billion made from the oil pool account to oil companies over the years. This excess payment had been pointed out by the Comptroller and Accountant General in its report on the oil sector.

Meanwhile, the petroleum ministry has asked the finance ministry to return to the oil pool Rs 44.29 billion it had withdrawn about a decade ago. This amount, according to the petroleum ministry, would help reduce the oil pool deficit to a large extent.

Petroleum ministry officials point out that the finance ministry itself is partly to be blamed for the ballooning oil pool deficit.

In the 2001-02 Union Budget, it had raised excise duty on high speed diesel from 12 to 16 per cent and that on petrol from 16 to 32 per cent putting an additional annual burden of Rs 5 billion in the oil pool.

The decontrol of aviation turbine fuel has also added to the woes of the oil pool.

The cross-subsidy, which was earlier available because of over-charging from ATF, is not available now. On the contrary, the oil pool will have to bear the additional burden of sales tax levied by states on sale of ATF to foreign airlines. The annual impact of this alone will be Rs 5 billion on the oil pool.

Moreover, the levy of 5 per cent customs duty on import of kerosene for sale through the public distribution system will also increase the oil pool deficit by Rs 1.50 billion.

Though the country does not import kerosene, the oil companies supplying it will have to be paid international parity price, which includes customs duty, for it.

This implies that the burden of 5 per cent Customs duty on this kerosene will have to be borne by the oil pool.

The petroleum ministry officials point out that all these calculations are based on the assumption that the international prices of crude oil will come down to around $ 23-24 a barrel.

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