Media reports indicate that the government may spare domestic cooking gas from the export-parity pricing methodology that it proposes to adopt for calculating under-recoveries on fuel products.
Thus, the government would calculate under-recoveries incurred by state-run oil marketing companies (OMCs) based on export parity price for diesel and kerosene, while it would continue with the trade parity pricing methodology for cooking gas.
State-run OMCs incur under-recovery on sale of diesel by Rs 8.19 per litre, kerosene by Rs 33.43 per litre and domestic cooking gas by Rs 439 per cylinder. The projected under-recovery is around Rs 163,000 crore during 2012-13.
The government wants to shift to export parity pricing method from the currently used trade-parity pricing method for diesel and kerosene because it would reduce subsidy burden for it. Trade-parity pricing is the weighted average of import-parity and export-parity in the ratio of 80:20.
The government may save Rs 10,000-12,000 crore for the full year on diesel subsidy alone by shifting to the export-parity model, reports indicate.
While the export and import prices don’t vary too much, the import-parity price (landed cost) — which includes tariffs, duties akin to domestic products and transportation charges — works out to be higher than the export-parity price, which is exclusive of import tariff (basic customs duty) and transportation (port and shipping) charges. So a shift to 100 percent export-parity pricing would mean a reduction in under-recoveries.