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No diesel price hike till new govt takes over

April 23, 2014 09:39 IST

Amid a spate of government proposals at its door, the Election Commission has asked all Union government departments to route their proposals through the Cabinet Secretariat. 

This means the freeze on diesel prices continues. The proposal on revising prices, pending before the commission, will have to be resent by the oil ministry through the Cabinet Secretariat.

With the general elections notified on March 5, the model code of conduct became binding on the government, political parties and electoral candidates until the end of the election process. 

A senior government official says any diesel price hike is unlikely till a new government is in place. With this, the government has given a quiet burial to the phased decontrol of diesel prices. Any decision on further price increases will lie with the new government.

Oil marketing companies (OMCs) have been raising diesel prices by 50 paise a month since January 17, 2013, as part of phased decontrol. 

The Kirit Parikh committee had in October 2013 recommended a Rs 5 increase in one go. But the government did not take that proposal forward.

"A decision on revision in retail prices for diesel shall be taken on receipt of further advice from the government," an IndianOil statement had said on March 31.

The statement also said the under-recovery on retail diesel was Rs 5.93 a litre (at the beginning of April). That was lower than Rs 6, the interim subsidy cap recommended by the Parikh panel; so, the issue of monthly price rises came under consideration of the government and was referred to the Election Commission. 

The under-recovery or revenue loss incurred by OMCs by selling diesel below the global price has come down to Rs 5.49 a litre from Rs 7.16 a month ago. In May 2013, it was just Rs 2.50 a litre, but the gap again rose to Rs 14.5 in mid-September, primarily due to the rupee's depreciation against the US dollar. 

Complete decontrol of diesel prices will mean that the government or any of its companies do not have to bear revenue loss on retail sales of the fuel. There will be no revenue loss as the retail price will be benchmarked to the 0.05 per cent sulphur content ArabGulf gasoline price. Applicable tax and margins would be built on top of the benchmark price. 

The three state-run OMCs together suffered revenue loss of around Rs 1,41,000 crore on sale of the three controlled products - diesel, LPG and kerosene - last financial year, with a net impact of Rs 40,000 crore after taking into account government subsidy and upstream discounts. 

The OMCs have under-recoveries of Rs 34.43 a litre on kerosene (sold through the public distribution system) and Rs 505.50 a litre on domestic liquefied petroleum gas (LPG). The projected under-recoveries of IndianOil on the three items are Rs 62,000 crore for 2014-15. The figure for the sector is Rs 1,20,000 crore. 

Although phased decontrol of diesel prices has been stalled, the OMCs have reduced petrol prices twice this month. The prices in Delhi were cut by Rs 0.90 a litre in the first instance and subsequently by Rs 0.85 a litre.

FROZEN DIESEL

  • Jan 17, 2013: Oil marketing companies start raising diesel prices by 50 paise a month as part of phased decontrol
  • Oct 2013: Kirit Parikh committee recommends a Rs 5 increase in one go; govt does not take the proposal forward
  • Mar 31, 2014: IndianOil says a decision on revision in retail prices for diesel to be taken on receipt of further advice from govt
  • FY14: The three state-run OMCs together suffer revenue loss of Rs 1,41,000 cr for the year on sale of diesel, LPG and kerosene
  • Apr 2014: Ball in EC's court after model code of conduct takes effect; EC wants govt proposals routed through Cab Secretariat; diesel prices remain frozen
Jyoti Mukul in New Delhi
Source: