Diesel prices should be immediately hiked by Rs 4-5 per litre, the Kirit Parikh Committee has recommended while favouring continuation of existing pricing principles for controlled petroleum products.
The expert group, which was tasked to suggest a methodology for pricing of diesel and cooking fuel, will submit its report on
Sources said the committee has suggested that trade parity pricing formula for diesel, kerosene and cooking gas (LPG) be retained.
It suggested an increase in its retail price by R4-5 per litre immediately and the remaining subsidy recovered from consumers through a monthly price hike of R1 per litre or oil companies be paid a fixed subsidy of R6 per litre.
The government is looking to alter the way diesel and cooking fuels are priced to reduce its subsidy burden, which appears to be spiralling out of hand.
Since the last fiscal, the finance ministry has pushed for refiners to be paid the equivalent of rates they would have realised if diesel, kerosene and LPG were exported.
A departure from the import parity price (import price plus duties and transportation) mechanism would have shaved off R17,618 crore from last fiscals R1,61,029 crore subsidy bill.
Sources said the panel has declined the finance ministrys demand for doing away with import parity pricing of diesel, kerosene and LPG.
The committee favoured partial increase in kerosene and LPG rates and moving towards market-determined prices in two to three years.
Currently, diesel is priced at trade parity, of which 80% is import price and 20% export rate. Kerosene and LPG are priced at import parity.
The finance ministry wanted export parity pricing for diesel and kerosene in 2012-13 and wanted LPG to be priced through a 60-40 mix of export and import parity rates.
Sources said a shift to export parity pricing would have cut the subsidy on diesel by R14,372 crore to R77,689 crore in 2012-13. Another R2,245 crore would have been saved on LPG and R1,001 crore on kerosene during the period. The savings would come from the removal of import duty and notional transportation cost in the import parity price.