Oil ministry gives in-principle nod to export parity pricing for Petroleum products - Angel Broking

Media reports suggest that the Oil ministry has given its in-principle nod to the proposal of the finance ministry to price all the petroleum products on export parity basis. Under the export parity system the price of the petroleum products will be based on export prices. Under the current system of Import parity pricing the import price consists of the import duty on crude and other transport costs which leads to higher prices causing higher under-recoveries and a resultant higher subsidy burden on the government. This move is however in line with our expectation since we believed that the government may do something on similar lines in order to reduce its fiscal deficit and since in the last couple of years Oil Marketing companies (OMC's) have not borne any burden of under-recoveries, this was expected to come.

This move would be negative for the OMC's because the export parity price is lower than the price which OMC's currently charge. In case of the Upstream companies (ONGC & GAIL), this may not immediately translate into lower subsidy burden because the government may change the subsidy sharing ratio in order to reduce its own share of subsidy in a move to control the fiscal deficit. We await further clarity on the exact timeline of the implementation of the export parity pricing mechanism and till then maintain our estimates on ONGC and GAIL.

Source : Equity Bulls

Keywords