State-run oil marketing companies (OMCs) and upstream firms like ONGC are awaiting the final decision from the government on adopting the formula for compensating the OMCs for under-recoveries.
While union finance ministry wants the adoption of export-parity pricing model to compensate for under-recoveries, petroleum ministry opposes the proposal as it would dent the financials of OMCs. Adopting export -parity pricing would signify a shift from the current practice of import-parity pricing.
Under import-parity pricing, companies factor in duties, freight and transport charges before the products are sold in the market. These costs are then recovered from the government as part of the compensation formula where the upstream oil companies (ONGC and Oil India) also do their bit in this subsidy-support mechanism.
Export parity is not possible when India is importing 80 per cent of our crude requirements, sources from union petroleum ministry remarked.
This is nothing short of catastrophic for the three oil companies, the ministry reiterated. If refining companies are importing crude, paying freight, port and transportation charges and then donÂ’t recover these costs, it becomes unviable for them to continue.
The government has to take a decision before state-run OMCs – IndianOil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation – declare their March 2013 quarter results by the end of May.
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