Following is the uncorrected text of the statement made by the Minister for Petroleum and Natural Gas, Shri Ram Naik at a press conference in New Delhi on 22.3.2000 in connection with price revision effected in the prices of LPG (Domestic), Kerosene (PDS) and Aviation Turbine Fuel (ATF):-

    International crude oil prices which remained between US $ 15 to 19 per barrel during the period 1991 to 1997 touched a 12 year low of below US $ 10 per barrel towards the end of 1998 and the beginning of 1999. Thereafter, crude oil prices started increasing from February, 1999 and have during the current month, touched a nine-year high of $ 28 per barrel (Dubai crude), the highest after $ 31 per barrel price of October, 1990 during the Gulf war. The price of crude oil which was around Rs. 3,210 per tonne in February, 1999 has gone up to around Rs. 8,180 per tonne in March, 2000, an increase of about 155%. The price of kerosene has gone up by 170% and that of LPG by 148% during the same period.

    Our dependence on imports being around 70% of our requirement of oil and products, the oil import bill for the current financial year has also increased and is expected to go up from the earlier anticipated Rs. 54,000 crore level to over Rs. 57,000 crore.

    On account of the volatile trend in the prices of crude oil and petroleum products in the international market, the oil pool deficit which had come down to Rs. 3,408 crore at the end of 1998-99, is now expected to close at around Rs. 6,300 crore at the end of the current financial year. The oil pool may see a record deficit of around Rs. 19,000 crore by the end the of next financial year if the oil prices remain at the present level and the selling prices of controlled products are not revised upwards. This level of deficit in the oil pool is not sustainable since there would be no money with the oil companies either to import or process crude oil and market products.

    The oil pool deficit represents outstanding amounts receivable from the Oil Coordination Committee (OCC) by the oil companies. Failure of the OCC to pay these amounts results into adverse liquidity position of the public sector oil companies which then have to borrow substantial amounts externally to meet their essential needs and for oil imports. The short-term borrowings have to be paid back and unless they are re-paid, further borrowings are not possible. Unless the problem of oil pool deficit is speedily resolved by making corrections in the selling prices, it may not be possible to maintain supplies of petroleum products after September, 2000 without fiscal support from Government.

    During the Congress Government led by Shri PV Narsimha Rao, an Expert Technical Group(ETG) was appointed to make recommendations on reforms in the hydrocarbon sector. The ETG submitted its two reports while United Front Government led by Shri HD Deve Gowda was in power. The second report of ETG was accepted by the United Front Government led by Shri I.K. Gujral on 20.11.1997 when it was decided to dismantle the administered pricing mechanism (APM) in a phased manner and to switch over to full de-regulation by the end of March, 2002. It was, also decided to increase the prices of PDS kerosene in instalments and to reduce subsidy on domestic LPG in stages.

    The annual subsidy in the current year on PDS kerosene is estimated to be approximately Rs.8,120 crore and on Domestic LPG approximately Rs.4,730 crore. At the current crude prices, the subsidy reach the order of Rs.11,000 crore for kerosene and Rs.7,000 crore for LPG during the year 2000-01 if the prices are not revised.

    The ex-storage point price of kerosene has remained unchanged since 1.3.1994 at Rs.2 per litre. The differential between prices of diesel and kerosene has been widening continuously over the last two decades. The difference between the basic prices of diesel and kerosene was only one paise in 1975; 66 paise in 1980; Rs. 1.19 in 1985; Rs. 2.09 in 1990 and Rs. 3.72 in the year 1995. Earlier, Governments spoke of reduction of subsidies and market mechanisms, but made hardly any attempt to increase the prices of kerosene. Today, the difference between the diesel and kerosene retail prices in Delhi is Rs.11.37 per litre. When we look at our neighbouring countries, the differential is Rs. 2.26 per litre in Sri Lanka and only 21 paise per litre in Pakistan. In Bangladesh diesel and kerosene are priced at the same level.

    This differential in the prices of diesel and kerosene is also contributing significantly to adulteration and black-marketing. In a study carried out by Tata Economic Consultancy Services in the year 1994, it came out that around 30% of kerosene meant for public distribution was being diverted towards other users including black-marketing and adulteration in diesel. Since the price differential has widened manifold, it can only be inferred that such diversion would be of a much higher order at present.

    I have, in my frequent interactions with the press and electronic media, been speaking of the need for raising the prices of kerosene and other products with the realities of the market. There has also been consensus on this issue in the Consultative Committee meeting of the Ministry of Petroleum and Natural Gas and in the conference of Ministers of Food and Civil supplies of various States.

    Taking into account the international prices, the prevailing market prices of diesel and the differential between diesel and kerosene prices as also the prices of kerosene in the neighbouring countries, it has been decided to increase the ex-storage price of kerosene from Rs.2.00 per litre to Rs.4.50 per litre. This would result in an increase of around Rs.2.80 per litre in various States and U.Ts., depending on state taxes, local levies, local delivery charges and retail commissions etc.

    LPG is a common fuel not only for the middle class and the urban housewives, but indeed for all sections of the people. Ministry of Petroleum and Natural Gas has decided that the waiting list for LPG aspirants be cleared by 31 December, 2000. It means a sanction of nearly one crore additional LPG connections. At current levels of prices of LPG, each cylinder sold by the oil companies has a subsidy of Rs.162. This subsidy is partly paid from the Oil Pool Account and to some extent absorbed by the oil companies. If we have to ensure that LPG reaches every household, we must bring the prices more close to the market to see that the oil companies do not suffer losses in providing LPG connections. I realise that it is not possible for the ordinary housewife to bear the burden of the total removal of subsidy at one go. In order to provide a balance between reduction of subsidy and burden on the housewives, it has been decided to increase the ex-storage point price of LPG cylinder by Rs.30 per cylinder. This would result in an increase of around Rs.50 per cylinder in the retail prices depending on states taxes, local levies, delivery charges, distributor commission etc.

    Aviation turbine fuel (ATF) price subsidises PDS kerosene and domestic LPG and, therefore, the domestic selling price of ATF is kept higher than the import parity price. However, with the increase in the international prices of products, ATF is currently priced at Rs. 1.06 per litre lower than the import parity price. It has been decided to increase the price of ATF at the ex storage point level by Rs.2.00 per litre. This would result in an increase of around Rs.3.00 per litre in the retail prices.

    As per Cabinet decision of 1.9.1997, selling price of diesel is required to be fixed on the principle of import parity pricing. The basic selling price of diesel was last revised on October 6, 1999. Though the prices of diesel in the international market have since gone up substantially, domestic selling price has not been revised. If the selling price is fixed in parity with the current international prices, basic price would need to be revised by Rs. 1.93 per litre. That would result in an increase of Rs. 2.50 per litre to Rs. 3.10 per litre at the retail point.

    Diesel is subjected to very high rates of duties and taxes in our country – 25% customs duty, 16% excise duty and sales tax of as high as 33% in some States. In Mumbai and Chennai, duty and tax component in the retail selling prices of diesel is around 55% and 49%, respectively. Because of this, retail prices of diesel in our country are much higher than in the neighbouring countries.

    As the retail prices of diesel in the country are already high and also because of abnormally high differential in the selling prices of diesel and PDS kerosene, it is proposed not to touch the diesel prices for the present. To this extent a deviation has been taken from the Cabinet decision to protect the interest of diesel consumers which include farmers and passenger and goods transport.

    Petrol is currently priced higher than its import parity price to cross-subsidise PDS kerosene and domestic LPG. As per Cabinet decision of November, 1997, selling price of petrol is to be moved towards import parity pricing alongwith removal of subsidies on PDS kerosene and domestic LPG in phases. Differential in the prices of petrol and diesel is resulting in switch over from petrol driven vehicles to diesel driven vehicles. This has led to distortions in the relative consumption of products making petrol surplus in the country. For these reasons, selling price of petrol is not being touched for the present.

    Even after the proposed increases in the selling prices of PDS kerosene and domestic LPG, Oil Pool deficit is, at the current oil prices, is estimated to go up from the estimated level of around Rs. 6,300 crore as on 31.3.2000 to a level of Rs. 13,670 crore at the close of next financial year i.e. 31.3.2001.

• % is indicated with Indian Price as base."