Petrol price in cities like Delhi and Mumbai may go up by Rs 0.41 per litre and diesel by Rs 0.26 a litre from April one when cleaner Euro-IV grade auto fuel will replace the existing grade in 13 big cities, Oil Secretary S Sundareshan said on Wednesday..
The oil ministry is pushing for increasing auto fuel price so that the cost of supplying cleaner fuel does not add to the current Rs 6 per litre loss on selling petrol and Rs 4.06 per litre loss on diesel.
"This (Rs 0.41 a litre hike needed in petrol price and Rs 0.26 per litre in diesel rates) is not on the basis of (Rs 40,000 crore or Rs 400 billion) capital expenditure (oil firms incurred in upgrading their facilities to producer cleaner fuel) but a requirement to bring domestic rates to international parity," he said at the launch of Euro-IV supplies in Delhi.
The actual price hike needed to cover the cost would have been 3-4 times the proposed increase.
Oil firms will sell ultra-low sulphur petrol and diesel in 13 major cities like Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad and Ahmedabad from April one, while Euro-III grade fuel is to be supplied only in the rest of the country.
Like the cost of shifting from Euro-III to Euro-IV in 13 big cities, a marginal increase in petrol and diesel prices is also proposed in the rest of the country which would move from Euro-II grade auto fuel to Euro-III specification.
However, the quantum of price hike for Euro-III fuel has not been finalised as there is delay in upgradation of some refineries, which may result in staggered or postponed launch as late as October 1.
Sundareshan said the government needs to take "hard decisions" to prevent revenue loss on auto and cooking fuels from rising to Rs 70,000 crore (Rs 700 billion) next fiscal from Rs 47,960 crore (Rs 479.60 billion) this year.
"Under-recoveries will rise if we do not take very, very hard decisions soon," he said, indicating his ministry's inclination for an increase in petrol and diesel prices.
Countering arguments that fuel prices leads to inflation, he said the government borrowings, to mostly fund subsidies, was responsible to a greater degree for rise in prices.
If fuel prices are not raised further, 2010-11 will see under-recoveries (revenue loss) on fuel sales rising to Rs 70,000 crore, he said. "Unless certain actions are taken, future will be very difficult."
Advocating increase in prices, he said the upstream companies like ONGC - who currently bear the revenue retailers lose on petrol and diesel - have limitations to how much they can foot the fuel loss bill. Similarly, the government too had limitation in subsidising cooking fuels LPG and kerosene.
Retailers Indian Oil, Bharat Petroleum and Hindustan Petroleum currently lose Rs 250 crore (Rs 2.50 billion) per day on sale of petrol, diesel, domestic LPG and kerosene. They lose Rs 6 per litre on petrol, Rs 4.06 a litre on diesel, Rs 16.91 per litre on kerosene and Rs 267.36 per 14.2-kg LPG cylinder.
"Hard decisions are necessary," he said.
The Euro IV standard specifies a maximum of 50 parts per million of sulphur in petrol and diesel. Euro-III fuel specifications call for a maximum of 350 parts per million.
