Current Oil and Gas Scenario of India
While India imports almost four-fifths of its crude-oil needs, the currently installed refining capacity already exceeds its domestic consumption demand for petroleum products. It has also emerged as a competitive exporter of certain refined products, particularly diesel. The major advantage of capacity expansion in refining has been a quicker move towards improvement in standards of fuel quality, which in turn has enabled significant progress of policy namely, adoption of cleaner, greener, and quality fuels.
Of all petroleum products consumption in India, Diesel constitutes 38 per cent. In 2008-9 production of diesel constituted almost 78 out of 190 million tons of petroleum products. Sale of diesel accounted for close to 59 per cent of the under-recovery in 2011-12. Almost 65 per cent of diesel is used in transportation activities that contribute to 6.6 per cent of GDP. Diesel sold from retail outlets located along national and state highways constitute more than three-fifths of all retail sales. Moreover, it is used as an input in activities that together account for almost 40 per cent of gross domestic product (GDP). As a consequence, price of diesel and efforts to maintain its uninterrupted availability has engaged the attention of policy and decision makers. Only four per cent of diesel is used for final consumption with remainder 96 per cent for intermediate use.
The taxation policy of petroleum products has successfully protected government revenue. Almost 80 per cent of total tax revenue from the petroleum sector is contributed by taxes on crude, motor spirit (MS or petrol or gasoline), aviation turbine fuel (ATF), and high speed diesel (HSD or diesel or gasoil).But there is a huge and rising element of under-recovery of the OMCs on account of sale of sensitive petroleum products namely, MS, HSD, domestic LPG and PDS kerosene. Under-recovery is essentially the difference between a desired price (based on international prices and other cost elements) and the actual (depot) price charged to dealers. This was estimated at INR 1385.4 billion in 2011-2, which is almost 46 times the fiscal subsidy for that year. Moreover, the wide wedge in retail prices between (a) the higher taxed but less efficient MS, and (b) the lower taxed but more efficient HSD, has hardly helped in improving the balance in resource utilization.
Vision and its objectives
Multi-pronged initiatives are envisaged for the India: Hydrocarbon Vision-2025 with principal objectives to ensure oil security
improve customer service
develop a competitive industry
enhance quality of life
assure energy security
The essential policy ingredients to affect these objectives relate to exploration and production
external policy and oil security
refining and marketing
tariff and pricing
restructuring and disinvestment
The elements of tariff and pricing policy intend to
promote new investment with adequate protection to domestic producers Incentivise environment friendly behaviour and encourage cleaner, greener, and quality fuels balance the need to boost government revenues with the need to align duties with Asia-Pacific countries and aligning prices to international levels remove subsidies and cross-subsidies to promote efficient utilisation and eliminate adulteration
The identified specific actions include
phasing out existing subsidies as early as possible
determine appropriate levels of tariff and duties
transfer subsidies to the budget
increase linkage of natural gas consumer price to near 100 per cent import parity with fuel oil
A perspective of Petroleum Products Pricing
The pre-independence policy of import parity pricing (IPP) for petroleum products, continued even after 1975. However, with the first major oil-shock in the post-independence period, a cost-plus basis of pricing was evolved. This was...
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