Parekh recos must, but govt may stay away till polls: Pros

The Kirit Parekh panel will submit its recommendations to oil minister Veerappa Moily on October 30. According to sources, the committee is likely to recommend a one-time hike of Rs 5 per litre going forward.

However, analysts are wary of the implementation of this hike. The upcoming elections will raise a question mark whether this will actually be executed, they say. RS Sharma, former CMD of ONGC feels that the panel must apply these suggestions for the government’s own credibility. Otherwise, what is the sanctity of such committees if these are not accepted, he asks. Meanwhile, RS Pandey, former oil secretary also raised concerns on the viability of these during polls. “The real issue is will finance ministry accept it. Will the consumers accept such a hike?” he asks. Energy expert Narendra Taneja feels that the government would want to be in a comfort zone as long as there is no much upside in the international crude prices and the rupee. Below is the edited transcript of their interview to CNBC-TV18. Q: We have managed to access exclusive details of what Kirit Parekh has recommended. At one level he is suggesting perhaps the more practical thing of a diesel, LPG and kerosene prices hike instead of moving from export parity to trade parity or from trade parity to export parity. In an election year will these recommendations be taken seriously at all? Sharma: It should be. This is the issue of the credibility of the sovereign government itself. When this panel was constituted, it has to be accepted that whatever their recommendation is should be accepted to the extent possible. I do not think the total diesel prices one quantum increase would be feasible at this point of time, but the philosophy should be accepted and at least this becomes some ground for the government to go ahead. We have the recommendations coming from the economists of high eminence. It is not that any politician is taking decision. It should now come out and give recommendation acceptance to the extent feasible. Q: If you think that it is unlikely that this report is going to be accepted or at least anything is going to happen with these recommendations, do you believe it is going to be status quo then as far as subsidy-sharing mechanism is concerned? Sharma: It will be very unfortunate, because otherwise what is the sanctity of making these committees and then their recommendations not getting accepted. _PAGEBREAK_ Q: Let us talk about what the panel is recommending in terms of the revised contribution for ONGC and Oil India starting FY15. Do you believe that at least as far as the subsidy sharing mechanism is concerned because what he is recommending comes into effect only from FY15, the government may perhaps want to look at this at this point in time? Pandey: It is certainly welcomed from the perspective of the oil producing companies and I think they have been unduly taxed all these years. They also need to have money to invest in their further operations. However, the real issue is will finance ministry accept it at the present moment when the deficit has risen so much and they are also in difficulty. The real issue is as far as the whole report is very appropriate from the perspective of either oil marketing companies or oil producing companies particularly the very welcomed recommendation that their contribution can't exceed the gross profit. The real issue is will finance ministry accept it. Will the consumers accept such a hike? These are various issues and always there have been concerns from finance ministry, oil marketing companies, and oil producing companies and one of the consumers. Always there has been an attempt to find some kind of balance. Will it really be accepted that is the question. Q: The finance ministry truly believes that we should be moving towards export parity which is not something that Kirit Parikh is recommending. The finance ministry has conservatively budgeted for the subsidy sharing as far as oil marketing companies are concerned. Are they really going to be in a position to accept the Kirit Parikh report at this point in tine or is this going to be another report on the energy sector which is going to fall by the way side? Pandey: As far as the pricing formula is concerned, I would tend to agree with what Kirit Parikh report has said. There is no need to go to export parity pricing because we import so much. How can you really change the formula? The trade parity pricing is the most appropriate under conditions in India. There finance ministry if it is saying only for the sake of reducing the subsidy burden, there is no substance in what finance ministry is saying apart from the fact that it will save them so money. So, I would agree with Kirit Parikh report that there is no need to change the status quo as far as the pricing formula is concerned. Kirit Parikh is also right in prescribing some kind of a graded subsidy depending on the price level on crude as far as the oil producing companies are concerned. Kirit Parikh is also right in saying that so much under recovery is not good for the health of the oil marketing companies. However he should have given some insight into why Rs 5 hike why not Rs 10 hike, why not Rs 2 hike? You can bit the bullet but the bullet is going to hit the consumer. You know onion prices, you know potato prices and therefore that is not possible to increase in one shot Rs 5 a litre diesel pricing. From the consumer perspective it is not going to be acceptable. Q: As we have been discussing here recommendations that make sense for the energy sector, that make sense as far as Oil Marketing Companies (OMC) are concerned, but perhaps in an election year absolutely unpalatable from a political point of view. So maybe the government is not going to want to do with the Kirit Parekh Committee report. Taneja: It depends on two very important factors. Number one, what happens to international crude prices? If international crude prices remain in the range of USD 100-115/barrel, there is going to be no pressure on the government, which means the government would stay in its cosy zone and they are going to even look at the report carefully. Number two, what happens to rupee? If rupee stays in the region of 60 against USD 1 the government would again sit in the comfort zone wanting to look at the report. This is election year. Unless there are big changes on these two fronts, the value of rupee and the price of crude oil, if crude oil prices touch USD 150 they will have no option but to increase the price of diesel. The message is, elections are on the horizon, country is in the election mode already, report is fine, reports come and reports go. I do not really think report is going to make any big difference. Unless there is a big surprise in terms of oil prices we are not going to see any kind of changes in terms of accepting or rejecting this committee report. They will stay in their comfort zone.