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Rediff.com  » Business » IOC seeks steep hike in oil prices

IOC seeks steep hike in oil prices

August 17, 2005 12:18 IST
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Indian Oil Corporation has approached the petroleum ministry with a proposal to raise oil prices by Rs 5.29 a litre and diesel by 4.54 a litre in line with the price band formula worked out by the government.

The petroleum ministry had earlier said oil prices should be raised by Rs 3.25 a litre and diesel by Rs 4 a litre to cover the under-recoveries of the oil companies.

While the government is dithering over the issue, the under-realisation on account of selling below import parity price has risen by another Rs 790 crore (Rs 7.9 billion) for petrol and diesel in August.

The India basket price of crude for Indian companies touched a record $61.58 a barrel on Monday. IOC had earlier indicated to the government that the increase required in price of kerosene was Rs 11.45 a litre and Rs 91.95 a cylinder for LPG.

In a letter to the petroleum ministry, Indian Oil Corporation said if the refinery transfer price (the price at which marketing companies buy from refineries) were changed based on the international prices during the previous fortnight and the there were no changes at the consumer end, the oil marketing companies would make under-realisation of Rs 7,876 crore (Rs 78.76 billion) during April 1 to August 15, 2005.

With mounting pressure from the OMCs, which reported losses in the first quarter, and international prices refusing to settle, Principal Secretary to the Prime Minister TKA Nair today convened a meeting of petroleum and finance ministry officials to take stock of the situation.

Making a case for the increase, IOC also said OMCs incurred an additional under-recovery of Rs 250 crore (Rs 2.5 billion) on import of diesel and petrol during January to June 2005 mainly to meet the meet the need for upgraded fuels.

It also said since dealer commission was increased by Rs 141 a litre for petrol and Rs 84 for diesel in two instances during June and August 2005 and the retail selling prices were not allowed to be increases, OMCs are suffering under realisation also on this account.

The letter added that unless immediate corrective actions are taken by way of increase in prices or suitable downward revisions in the excise duties, the adverse financial position of OMCs is likely to deteriorate further in the second quarter.

Common man will not bear the brunt: Aiyar

The government on Tuesday made a case for hike in petroleum prices but said all steps would be taken to keep minimise the burden on the common man by considering reduction in duties.

"We are going through one of the worst crises in international oil prices," Petroleum Minister Mani Shankar Aiyar told the Lok Sabha during a discussion on the rise in the prices of essential commodities, including petroleum products.

"We believe in equitable burden sharing. A little bit by the consumer, a substantial chunk by the government and the larger share on shoulders of the oil firms," he said.

Aiyar said the oil prices shot up $18 in the last 14 months, which was equivalent to the increase over eight year period from 1996 to 2004.

Yet, the UPA government increased petrol prices by mere Rs 7 as against NDA government's Rs 16, PDS kerosene by only four paise vis-a-vis NDA's Rs 6.05, diesel by Rs 6 as against NDA's Rs 15 and LPG by Rs 53 a cylinder as against Rs 145 a cylinder.

He said the government had resorted to only modest increase and oil companies absorbed a sizeable amount despite a whopping 164 per cent rise in crude oil prices, 177 per cent in petrol, 203 per cent in diesel and 218 per cent in case of kerosene and 108 per cent for LPG in the last three years.
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