Oil PSUs may get to fix petro prices

The government is likely to give public sector oil firms limited autonomy to fix petrol and diesel prices within a narrow price band once international markets stablise, Oil Minister Mani Shankar Aiyar said on Monday.

Aiyar would approach the Cabinet in a months' time to apprise them of the necessity to increase the price of petrol by Rs 2.85 a litre and that of diesel by Re 1 per litre in light of the Budget proposal to increase excise duty on them.

"We will like to revert to the price band mechanism (fixing auto fuel prices in a narrow 10 per cent band) when international prices stabilise," he said in an interactive session with the Forum of Financial Writers.

The government had introduced the price band in August last year but had to soon abandon it with international prices shooting up to $56 a barrel.

Aiyar did not say if he would be seeking Rs 2.85 per litre hike in petrol and Re 1 per litre increase in diesel prices to offset excise duty implications.

"We will be going to the Cabinet with full implications of the budget and it is for them to decide," he said.

International oil prices, he said, are expected to stabilise by April-May once the US administration puts in place policies to curb runaway fiscal and budgetary deficit and the winter demand ends.

"Prices will be relatively lower to 2004 but not to the levels of 2003... but there should be greater stability in international market," he said.

"As soon as we get signs of stabilising international markets, we should be able to put together a domestic pricing policy."

Aiyar said the change in excise duties had put a heavy burden on the oil companies. Not passing on the increased incidence of excise duty would result in around Rs 264 crore (about Rs 106 crore on petrol and Rs 158 crore on diesel) loss to them every fortnight.

The Budget cut customs duty on petrol and diesel to 10 per cent from 15 per cent but rejigged the excise duty on both products to a mix of ad valorem and specific rates.

Additionally, the cess for road development has been increased by Rs 0.50 per litre to Rs 2.00.

Aiyar says that the duty changes left the oil firms poorer with the public sector refineries losing Rs 1,200 crore (Rs 12 billion) a year as their duty protection rate got reduced by one per cent with cuts in customs duty on products.

He blamed speculation to the phenomenal rise in global crude oil prices in second half of 2004.

"Not a single drop of oil was lost in any part of the world due to terrorist activities. The supply was at equilibrium with demand."