Amit Agarwal 3 Oil & Gas+91 22 55069927
Case A: If the pricing policy is changed from import to trade paritypricing and its possible impact
The Rangarajan Committee has recommended a shift from import paritypricing (ex-refinery) to a mix of import and export parity in ratio of 80:20 (tradeparity). Assuming every thing else remains constant, we expect the subsidyburden to decline from Rs413bn to Rs351bn in FY06E. Subsidy burden is thedifference between the import parity based retail price and the actual retailprice. A shift in this direction will reduce the ex-refinery price leading to lowersubsidy burden as shown in Table 1 below. The table below shows thechange in contribution from every participant after the committee report isimplemented.
Table1: Change in subsidy burden based on change in pricing policy
Contribution to total subsidy New pricing (%) Old pricing (%)
Government 24,696 7 24,696 6Upstream 115,852 33 136,578 33Refinery 28,085 8 33,110 8Oil bonds 94,788 27 111,746 27Increase in prices 45,639 13 53,804 13Marketing companies 42,006 12 53,940 13
Total 351,066 100 413,873 100
Source: IL&FS Investsmart
The Table 2 below gives the subsidy burden (Rs/per unit or litre) if the new pricingpolicy is implemented.
Table 2: Change in subsidy burden
In Rs per unit
Decline in the ex-refinery priceImportparitypricingpolicyNew pricingpolicySale price(April FY06)CurrentsubsidyNewpricing*subsidy
MS (Rs/lt) 50.3 48.2 44.5 5.8 3.7HSD (Rs/lt) 36.3 34.6 32.8 3.5 1.8LPG (Rs/cylinder) 457 444.3 295 162 149.3SKO (Rs/lt) 22.9 22.1 9.01 13.9 13.1
Note (1): These estimates do not include the hikes in petroleum prices as recommended by the Rangarajan Committee.Source :IL&FS Investsmart, Media.