Subsidisation Process Should Not Distort the Level Paying Field: CUTS

New Delhi, April 04, 2008

CUTS International, a leading economic policy research and advocacy NGO, has expressed concern over the lack of competitive neutrality in enabling the private sector to market petroleum goods in the market.

In a press release issued here today, CUTS Secretary General, Pradeep S Mehta, said that shutting down of marketing outlets by private companies such as Reliance and Shell is a very serious issue and may adversely affect the level of private investment not only in oil, but in other sectors as well.

“It is socially justified to provide subsidies to curb high prices. But at the same time, subsidies should be given in a transparent and non-discriminatory manner without having any harmful effect on the productive as well as allocative efficiency in the sector” said Mehta

CUTS has stated that in the international market, crude oil price has crossed USD 110 per barrel. Given that oil price at the consumer end is under regulation, all oil companies (including publicly owned) are loosing Rs. 8 to 10 per litre on petrol as well as on diesel. It is not possible for any of the companies to continue with business with this huge loss. The only option is to increase the price, if no subsidy is provided.

“If the government has decided to keep the petroleum prices at the same level, it should support all companies by giving justified amount of subsidy. Private companies are meeting the required norms and efficiency targets, therefore, they equally deserve the same subsidy”, added Mehta.

CUTS has asked that such discrimination would be against the spirit of fair competition. Policy requires the government as well as regulator to create a level playing field for operators to foster competition in the sector.

“Since the operators have moved the Petroleum and Natural Gas Regulatory Board (PNGRB), it is for the Board to initiate action under the section 11 of PNGRB Act dealing with unfair trade practices”, Mehta added.

CUTS has also pointed out that the consumer choice should be restricted by forcing them to purchase the product only from the public sector companies. Government should encourage competition and efficiency and targeting benefit to the ultimate users in the sector.