Imposition of carbon surcharge: 17 percent hike in POL prices from July 1 likely

The consumers are likely to face 17 percent hike in oil prices after imposition of "carbon surcharge" on petroleum products in place of petroleum development levy (PDL) effective from July 1, 2009. However, the government has decided not to levy "carbon surcharge" in place of PDL on JP-4 and JP-8 and the Finance Ministry has formally conveyed the decision to Petroleum Ministry.
The Petroleum Ministry had sought explanation from the Finance Ministry regarding the replacement of PDL with carbon surcharge on two petroleum products, ie JP-4 and JP-8. The government is currently charging rupees three per litre PDL on JP-4 and JP-8.
Sources in the Finance Ministry revealed to the Business Recorder on Tuesday that the Finance Ministry had conveyed to the Petroleum Ministry that the government would end the PDL from July 1 and levy "surcharge" on petroleum products, including kerosene oil, high speed diesel, motor spirit (MS), light diesel oil (LDO) and HOBC.
The Finance Ministry has further revealed that fixed rate of carbon surcharge, announced in Finance Bill 2009-10, would be applicable from July 1. According to the Finance Bill 2009-10, the government will charge rupees eight per litre carbon surcharge on high speed diesel oil (HSDO), Rs 10 per litre on motor spirit (MS), rupees six per litre on kerosene oil, rupees three per litre on light diesel oil (LDO) and Rs 14 per litre on HOBC. The sources said that the total impact of this surcharge would be equivalent to a 17 percent hike in price of petroleum products.
The government had targeted collection from carbon surcharge on petroleum products at Rs 122 billion in the 2009-10 financial year budget and Rs 12 billion collections from carbon surcharge on compressed natural gas (CNG). However, the government has exempted CNG from carbon surcharge after facing severe criticism from the parliamentarians and the public.
According to the sources, the Finance Ministry had said that there would be no notification of surcharge and it would be implemented in place of PDL on the petroleum products from July 1. After imposition of carbon surcharge, the government may deregulate price of all petroleum products and authorise oil marketing companies (OMCs) to make automatic adjustment in oil prices in line with the global oil prices.
However, the OMCs will follow formula of oil pricing set by Federal government. At present, high speed diesel (HSD) price is deregulated based on the Federal government formula, whereas the prices of other products, including light diesel oil (LDO), kerosene oil, and motor spirit, JP-1, JP-4 and JP-8, are regulated and notified by the government at the end of every month.