March 28, 2002

'20'

GOVERNMENT NOTIFIES DISMANTLING OF ADMINISTERED PRICING MECHANISM (APM) IN THE PETROLEUM SECTOR

    Shri Ram Naik, Minister for Petroleum & Natural Gas, announced the details relating to dismantling the Administered Pricing Mechanism (APM) in the petroleum sector at a press conference held in New Delhi today. A Government Resolution containing decisions in this regard was also issued separately.

2. Consequent to the notification issued today, the following changes will take place from 1st April 2002 :-

  1. Consumer prices of petrol and diesel will become market determined. Consequently, all petroleum products will be sold at market prices except kerosene under the public distribution system (PDS) and LPG cylinders used for domestic cooking.
  2. PDS kerosene and domestic LPG will carry subsidy at a specified flat rate basis which will be borne by the Consolidated Fund of India. After adjusting the flat rate of subsidy, the retail prices of these subsidised products will vary with the price of oil in the international market.
  3. Subsidy on PDS kerosene and domestic LPG will be phased out in 3 to 5 years.
  4. Government will also provide freight subsidies for supply of PDS kerosene and domestic LPG in far-flung areas namely, the hilly areas in the States of J&K, Himachal Pradesh, Uttranchal, Sikkim, North Eastern States and Andaman Nicobar & Lakshadeep Islands.
  5. The pricing of indigenous crude oil produced by ONGC and Oil India will become market determined.
  6. The Oil Coordination Committee will stand abolished and the oil pool account will be wound up. The outstanding dues of the oil companies against the oil pool account will be liquidated by issuance of Government bonds to the concerned companies:-
  1. to the tune of Rs.9000 crore immediately; and
  2. for the balance amount after the settlement of the pending claims and completion of audit by C&AG.
  1. A Cell by the name "Petroleum Planning & Analysis Cell" under the Ministry of Petroleum & Natural Gas would be set up to assist the Ministry.

3. For deregulation of marketing of retail products the following decisions have been taken:-
  1. Private parties will be permitted to market petrol, diesel and aviation turbine fuel subject to their meeting the specified guidelines notified by the Government on 8th March 2002. Authorization to grant marketing rights will be issued by the Ministry till a regulator for the downstream petroleum sector is set up.
  2. For those new dealerships/distributorships for which advertisements have been issued in the newspapers uptil now, selection process will be completed through the Dealer Selection Boards. Thereafter, oil companies will set up their own selection mechanism.
  3. Circulars/guidelines issued by the Ministry to the public sector oil marketing companies under the APM will be withdrawn and wherever necessary new guidelines matching the requirement of post-APM era will be issued.
  4. For setting up a regulator for the downstream petroleum sector, the Ministry has finalized the draft bill which would be introduced in Parliament when it re-assembles after 14th April 2002. Till such time the regulator is in place, the Ministry will oversee the functioning of the downstream oil marketing companies.

4. On the supply side, to ensure that there is no disruption in reaching products throughout the country after the winding up of the OCC, oil companies, PSU, JV and private, have finalised product supply/exchange arrangements. Shri Naik expressed confidence that with these arrangements, a smooth transition from the administered pricing to the free market regime will be achieved. The Minister hoped that all players including the oil companies, related agencies & authorities and the State Governments will cooperate in ensuring a smooth transition. Shri Naik sought cooperation in particular of the State Governments in reaching the benefit of free pricing to the consumers as some State Governments have decided to mop up the reductions announced in the retail prices of petrol and diesel by the Union Government from 1st March 2002 , by increasing the sales tax rates.

With the issuance of the notification dismantling the APM today, the road map laid for phased dismantling of APM announced in November 1997 has been completed, stated Shri Ram Naik.

5. The envisaged benefits of dismantling the APM include-

  1. improvement in the competitiveness of domestic petroleum industry, thereby improving its productivity and efficiency;
  2. creating market conditions necessary to attain the economic pricing regime for petroleum products;
  3. providing subsidies in a more transparent manner through the fiscal budget of the Government;
  4. emergence of a free and globally competitive market with minimal intervention, thereby benefiting both the consumers of petroleum products and the petroleum industry.