Govt hikes petrol prices by Rs 4, diesel by Rs 2

CRUDE WAYS CUTTING LOSSES

 THE government on Wednesday raised pump prices of auto fuels to stem the losses of stateowned retailers that sell petrol and diesel below cost price, revealing its intention to deregulate the sector.
    Petrol will be costlier by Rs 4 a litre and diesel by Rs 2 a litre from Wednesday midnight. Prices of cooking gas and kerosene were left untouched, as a hike could affect the poorer sections of the society.
    The last time auto fuel prices were raised
was on June 4, 2008. It was followed by two quick rounds of price cuts in December 2008 and January 2009, well before the general elections were announced, as global crude prices came down sharply. As a result, petrol became cheaper by Rs 10 a litre and diesel by Rs 4 a litre.
    Crude oil prices have more than doubled from $33.98 a barrel on February 12, the lowest closing price in 2009, resulting in huge losses to government-owned fuel retailers — IOC, BPCL and HPCL.
    The timing of the move is interesting on two counts. Elections for West Bengal civic bodies are over, so coalition partner Mamata Banerjee's opposition to such a move would be muted. The price hike on the eve of the Budget also allows the government to perform two kinds of fiscal reform. One, include fuel subsidies in budgetary accounting instead of fudging figures by counting oil bonds, meant to finance fuel subsidies, as off-budget item. Two, still keep the now-expanded fiscal deficit down by reducing the amount of subsidy on fuels.
    The government is planning to compensate stateowned oil marketing companies through budgetary provisions. This will be a departure from the current practice of compensating them through off-budget oil bonds.
    Fuel prices were increased after consulting UPA chairperson Sonia Gandhi and Prime Minister Manmohan Singh, oil minister Murli Deora said at a press conference.
    Petroleum secretary RS Pandey said the government has not attempted to fully cover the losses of fuel retailers, which were losing Rs 6 on the sale of every litre of petrol and Rs 3.60 on a litre of diesel.
    Mr Pandey also hinted that the government may meet revenue losses of fuel retailers from selling fuels at the government-determined rates through a budgetary mechanism.
    At the current crude oil price of Indian basket ($70.29 a barrel), the total revenue loss of fuel retailers is estimated at Rs 30,000 crore for 2009-10. The companies are still losing Rs 15.20 a litre on kerosene and Rs 96.8 per cylinder on cooking gas, he said.
    The losses of retailers will also be met through upstream discounts. The contribution of upstream companies such as ONGC, Gail India and Oil India will be not be more than what they had given in the past, he said. Upstream cos paid Rs 32k cr as discounts to oil firms
LASTyear, upstream companies had to pay about Rs 32,000 crore as discounts to the three public sector oil companies, IOC, BPCL and HPCL. The minister maintained silence over meeting the revenue losses of retailers through oil bonds, a practice followed so far, that saw the quantum of oil bonds jumping by over 100% at Rs 71,000 crore in 2008-09.
    "The fuel price deregulation was very much on agenda, and could happen any time," an oil ministry official said, requesting anonymity. But Mr Pandey declined to comment on the government's fuel price deregulation move. Under a proposal, the government is considering to allow fuel retailers to adjust pump prices of petrol and diesel as long as the average price of crude oil used in domestic refineries stays below $75 a barrel. Beyond the cap, the state will step in to protect the consumer. Even within the cap, oil companies will not be allowed to increase retail prices beyond 15-20% at one go.

PUMP PRIME Current auto fuel prices in four metros (approx)
PERFECT TIMING
West Bengal civic elections are over, and crucial coalition partner Mamata Banerjee's opposition to the price hike will be muted The hike in petrol and diesel prices on the eve of the Budget paves the way for the government to perform two kinds of fiscal reforms
SMOOTH REFORMS
Govt can include fuel subsidies in budgetary accounting, instead of fudging figures by counting oil bonds meant to finance fuel subsidies as off-budget items The Centre can still keep the now-expanded fiscal deficit down, by reducing the amount of subsidy on retail fuels

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