Experts not hopeful of implementation of Parikh recos

The Kirit Parikh panel on Wednesday recommended a hike of Rs 5 per litre on diesel price, Rs 4/litre on kerosene and Rs 250 on LPG. The panel also fixed diesel subsidy of Rs 6/litre with a gradual deregulation of the prices in a year’s time.

Experts are wary of a near-term implementation of the recommendations presented by the Kirit Parikh panel on oil pricing due to political and economic repercussions. RS Pandey, former secretary in the oil ministry cites political hurdles in executing the same. Subsidy sharing for upstream companies will be good as they have been stressed, he tells CNBC-TV18. Meanwhile, SC Tripathi, a former secretary in the oil ministry is also not hopeful of any action on the suggestions. However, giving more powers to the regulators to decide on the subsidy is an action that can be implemented now, he feels. Also read: Parekh recos must, but govt may stay away till polls: Pros Below is the edited transcript of his interview to CNBC-TV18. Q: The Parekh panel has recommended an immediate diesel, kerosene and LPG price hike and has decided to stick to trade parity pricing no matter what the Finance Ministry was saying. Is it good news for the oil and gas sector? Pandey: For Oil Marketing Companies (OMC), it is certainly good news, but one does not know whether the government will find it easy to accept. Yesterday only the repo rate was raised because of the concerns on inflation. Everyone knows about onion, potato prices. If you raised diesel prices now by Rs 5/litre straight in one go, I do not think consumers will appreciate it. With state and national elections around the corner, one doubts whether it is going to be politically acceptable. Q: Would you agree with that the subsidy sharing formula and a tweaking of that mechanism as per the recommendations of this report; any of that is now only possible under the new government in 2014? Pandey: One need not wait till 2014, but certainly at the present moment I do not think it is going to be accepted by the government. Maybe after the assembly elections they will raise the diesel prices by a few rupees as a balance will have to be struck between the requirements of the OMCs, the consumers, and the national economy. Governments have been doing this all through so far. So some touching up is possible, but certainly Rs 5 at the moment is impossible. Q: We may have a set of recommendations, but no sign of when these recommendations are going to be accepted. Do you really foresee a New Exploration Licensing Policy (NELP) round and as far as the Follow-on Public Offers (FPO) or the divestments of Indian Oil Corporation (IOC) etc. are concerned? do you really believe the market is going to have appetite? Pandey: I would like to agree with Parekh Committee's recommendation as far as the subsidy sharing from upstream companies is concerned because they also have been under stress. It has been unreasonable to extract so much money of them as they do have their investment requirements apart from the NELP rounds. I doubt if Finance Ministry is going to accept it at the present moment because they have concerns about fiscal deficit. The finance minister has announced that he will not like to go beyond whatever he has already committed to the country. So, if Finance Ministry does not accept these recommendations, we will not go anywhere towards implementation. As far as the export parity pricing versus trade parity pricing is concerned, Parekh Committee is very right in not accepting the export parity pricing formula. The Finance Ministry may wish it should happen because that will save some money from their offers, but it is very unreasonable and the OMCs will be under stress. When you import so much and you depend so much on trade, then where is the question of export parity pricing. It has to be trade parity pricing and I think that is appropriate. _PAGEBREAK_ Q: The oil minister is anxious to see that this report is processed. He cannot give a specific timeline on the implementation and will consult with the finance ministry before moving on the recommendations. The finance ministry has made it very clear; they have actually sent in a dissenting note to the Kirit Parikh panel saying disagreement with the recommendations. So, is this really likely to go anywhere? Tripathi: I think 6-7 committees have given recommendations and they have not deferred very much from each other in their recommendations. Parikh himself; this might be his third recommendation. Rangarajan has given two recommendations, BK Chaturvedi has given one recommendation and Vijay Kelkar once he looked into this issue as chairman finance commission and lately he was looking into the issue of subsidy for purpose of fiscal consolidation. It is not a question of the committees not having gone into or recommendations not being available. Many oil ministers have come and gone and similar recommendations have been there. I doubt that now with code of conduct being in place for assembly elections and a very narrow window of 2-2.5 months available from January to end of February, may be from end of December to end of February whether the government will be able to do anything much. So, I am not very hopeful. Q: Do you actually see the IOC divestment being a success. There has been back and forth on when that issue will finally happen, whether or not it will happen, but given that the government is woefully short on its disinvestment kitty it will probably try and push as many of these issues possible but given the fact that this uncertainty continues to be an overhang do you really believe it will be successful? Tripathi: I don’t think this is a suitable time either for disinvestment in any of the oil sector companies or for going for a NELP round. Government has its hand tied and may want to raise money anyhow. If they wish so, then they will go for disinvestment and the NELP round, but they will not be a great success. Q: Do you believe that there could be a peace meal approach that the government may adopt. Is there anything in this report that the government may be able to adopt now? Tripathi: These are some of the comments which are coming. I think government should adopt is hands off approach giving powers to the regulatory authority – the downstream regulatory authority and allowing competition between public sector and private sector refinery and marketing companies and telling upfront that this is the budget subsidy. Let the regulator decide what amount of subsidy per litre of diesel and what amount of subsidy per cylinder of LPG and per litre of kerosene will be given. Just as in fertilizer, both private sector and public sector compete and government only decides what would be the subsidy. The actual distribution of subsidy then is left to the regulator. The price will then be market related and only the subsidy amount will be determined by the government. It is not that the government doesn’t have money on one hand and on the other hand the companies cannot raise the price.