Fin Min mulls export parity pricing for petro products

The key theme for the Finance Ministry is fiscal consolidation which seems an answer to all of India’s problem be it inflation, the ratings downgrade or boosting investment. One of the possible ways that the Finance Ministry is mulling now is export parity pricing (EPP).

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Currently we have trade parity pricing and the difference is that the cost of procurement for oil marketing companies (OMCs) can be calculated in two ways. Trade parity pricing include not only the cost of imports, but the landed cost which includes transportation costs and duties as well.

In EPP you will only take the average of exports in select markets. EPP would be lower than the current trade parity pricing which is likely to reduce under-recoveries. The Finance Ministry is of the view that if there is EPP, the OMCs will be pushed to improve their refinery margin and they will be pushed to better operational efficiency.

The other side of the argument within the ministry itself is that this could be risky for OMCs because it could initially push them into losses while they improve their operational efficiencies. So it remains to be seen who wins that battle, but the Finance Ministry is very keen on pruning subsidies. Hence it could consider EPP as soon as this year or possibly in the next year’s budget.