Submitted to UPA-Left Coordination Committee Meeting
on November 13, 2006
The Left Parties had sent a note to the Prime Minister on 5.6.2006, detailing the reasons  why a price hike was not justified in view of the alternatives available before the government in the form of restructuring of taxes/duty and cess on crude oil and petroleum products. The government rejected  the alternative proposals and raised the price of petrol and diesel on two major pleas: (a) high international price of crude reaching  71.13 dollar /barrel in May 2006 and (b) poor financial health of public sector Oil Marketing Companies (OMC).
2. It is understood that Petroleum Ministry had itself proposed a reduction in exercise duty on petrol and diesel by Re 1/litre in August 2006 partially in line with the consistent demand of the Left parties  on rationalization of taxes/duties. This would reduce the burden of the public sector OMCs. Further the Finance Minister  has reportedly hinted reduction in corporate taxes in view of higher tax collections.  Reductions in excise duty giving relief to the common man of the country deserves much more priority than the reduction in the corporate taxes.
3. International oil price has now come down below 60 dollar/barrel  for more than a month. Keeping in mind, that the average crude price in the financial year  2005-2006 was more or less in the same level before the price hike of  petrol and diesel, the same should be brought down to the pre June 2006 level.
4.  As for the financial health of OMCs  half yearly financial results of FY 2006-2007 show a very healthy trend of considerable increase in net profit earned by these PSUs. Moreover, the high dividend of Rs 6,417 crore paid by ONGC and Rs 1466 cr by IOC to the government for FY 2005-2006  does not indicate poor health of  Oil PSUs.  Left parties reiterate that “under-recoveries” are notional loss and not actual loss. It is regretted that a lot of confusion is being created by Petroleum Ministry by harping on under-recoveries as losses by PSU  OMCs when the financial results  tell a different story. Reasonable profit for public sector OMCs as well as private sector stand alone refineries should be  clearly defined based on actual cost of the crude, and cost of refining  and marketing.
5. Govt should accept the unanimous recommendation of the Parliamentary Standing Committee  to create a price stabilisation fund by using the money collected through cess   charged on indigenous crude produced by ONGC and Oil India Ltd (OIL) at a rate of Rs 2,500 /ton. This can be a core fund for helping the OMCs. Similarly duty draw-back of Rs 3,500 to 4000 cr given as export incentive to private stand alone refineries  should also be reviewed.