The government is considering giving public sector oil firms limited freedom in fixing petrol and diesel prices by setting a price band.
Also on cards is setting up of a Crude and Petroleum Product Stabilisation Fund, much on the lines of control era Oil Pool Account, to insulate the consumers from extreme volatility of international prices.
Petroleum Minister Mani Shankar Aiyar is likely to seek the oil industry's views on the twin proposal at a review meeting on Saturday morning, sources said.
In the 1980, the government managed the foreign exchange ratio by fixing a 10 per cent price band for the movement of rupee against the dollar. Similarly, the oil companies may also be given a ceiling for revising petrol and diesel prices when cost of raw material (crude oil) went up or down.
The price band and the oil pool in its new form may also apply to kerosene and LPG besides petrol and diesel.
Sources said in the Price Management Scheme, oil firms will surrender incremental profits to a Price Management Fund every time crude oil crosses a pre-set price. From the fund, the firms should be compensated when prices fall below the benchmark.
Alternatively, the excise duty rates would be adjusted in inverse proportion to the variance of actual prices against the benchmark. In case the duties are charged on specific rates, they will have to be adjusted in steps.
To secure the benefits for the actual consumer, all four products would be statutorily classified as Declared Goods, so that the reductions achieved through PMS and PSS are not mopped up through Sales Tax and its variants.
The refinery transfer price, sources says, would be the sum of actual price paid for crude, normative processing charges of $1 per barrel maximum and the normative Gross Refinery Margin of 15 per cent.
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