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Petrol, diesel prices to be hiked soon

Last updated on: December 8, 2010 16:46 IST

Petrol, diesel prices to be hiked soon

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State-owned oil companies may raise petrol prices by Rs 1.50-Rs 2 per litre early next week, while a Rs 2 a litre hike in diesel rates is under the government consideration, a senior official said.

"Petrol prices will be raised after the current session of Parliament ends on December 13," the official said.

A hike a diesel prices also looks imminent as crude oil prices have inched closer to $90 per barrel, widening the gap between domestic retail rates and their imported cost.

Petroleum Minister Murli Deora met Finance Minister Pranab Mukherjee on Tuesday to discuss convening a meeting of the Empowered Group of Ministers (EGoM) next week to decide on hiking diesel rates.

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Image: Deregulation to fetch more money for oil cos.
Photographs: Reuters.
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"In all probability, diesel prices may be hiked by Rs 2 per litre," he said. Indian Oil, Hindustan Petroleum and Bharat Petroleum had last raised petrol price on November 9, just before the winter session of Parliament began.

"The last hike of Rs 0.32 a litre was lower than the Rs 1.1 per litre desired increase to make domestic retail rates at par with international prices," he said.

"The three firms are currently losing about Rs 2.40 per litre on petrol."

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Image: Diesel prices may be hiked by Rs 2.

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When contacted, Oil Secretary S Sundareshan said the government will not intervene in fixation of petrol prices which had been deregulated in June.

On diesel price hike, he said "it will be a political decision". "Oil marketing companies are losing Rs 4.71 per litre (in revenues) on diesel sales. If global crude oil prices show no sign of abating, the government will have to take a view," Sundareshan said.

IOC, BPCL and HPCL currently lose Rs 75 crore (Rs 750 million)  in revenues on selling diesel below its imported cost.

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Image: Global crude oil prices rise.

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Freeing diesel prices from government control, as had been decided in June, is not possible at this juncture as it would mean passing on the entire Rs 4.71 a litre hike to consumers.

"That will be unreasonable," he said. "But some price hike will have to be passed on to consumers." He did not elaborate ont he quantum of hike being considered.

The official said Deora discussed how the Rs 65,839 crore (Rs 658.39 billion) revenue loss IOC, BPCL and HPCL are expected to register this fiscal on selling diesel, domestic LPG and kerosene below cost, will be compensated.

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Image: Freeing diesel prices.

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So far, the finance ministry has committed to provide only Rs 13,000 crore (Rs 130 billion) in cash while the oil ministry wants about half of the revenue loss to be met by the government. Another one-third would be provided by upstream firms like ONGC.

State-run Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum currently sell diesel at Rs 4.71 per litre discount from its imported cost.

If diesel rates are deregulated that is the amount by which retail prices will go up. The EGoM had on June 25 freed petrol price and had decided to make diesel prices market-based in due course.

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Image: Oil rig.

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"Unfortunately, crude prices have been consistently going up since June," Sundareshan said. International crude oil (raw material for making petrol and diesel) prices were around $72-74 per barrel in June.

The June 26 decision had resulted in a Rs 3.50 a litre hike in petrol prices in Delhi.

At that time, the government decided to raise the diesel price by an ad-hoc Rs 2 per litre, even though the difference between the domestic retail price and imported cost of the fuel was almost twice of that.

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Image: Crude prices continue to rise.

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Since then, diesel rates have not been changed while the price of petrol has changed five times since then. For this fiscal, the three fuel retailers are projected to lose Rs 65,839 crore (Rs 658.39 billion) in revenues on selling fuel below imported cost.

During April-September 2010, IOC, BPCL and HPCL lost a revenue of Rs 31,367 crore (Rs 313.67 billion) on selling fuel below cost.

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Image: A worker transporting kerosene in a bullock cart travels past Indian Oil Corporation's fuel depot.
Photographs: Danish Siddiqui/Reuters.
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"Of this, Rs 10,456 crore (Rs 104.56 billion) have been compensated by the public sector upstream companies through price discounts on crude oil and products. Ministry of Finance has confirmed a budgetary support of Rs 13,000 crore (Rs 130 billion)," Sundareshan said.

The budgetary support was less than the Rs 15,683.30 crore (Rs 156.83 billion) the oil ministry had sought to cover for the public sector oil companies' revenue losses in the first half of the current fiscal, he added.

Besides diesel, the oil retailers lose Rs 272.19 on the sale of every 14.2-kg LPG cylinder and Rs 17.72 per litre of kerosene.


Image: Oil cos suffer losses.

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