New Delhi: The Congress party-led United Progressive Alliance (UPA) government is planning to cut petroleum prices after elections in six states are concluded on 24 December.
If the party does follow through, it could also help mitigate any adverse results in those elections and create a more populist image ahead of general elections due by April.
A senior cabinet minister involved with the thinking on this issue said the plan had been put on hold to avoid violating the election related code of conduct established by the Election Commission that generally prohibits moves that could be seen as trying to sway voters.
“It has been indicated to us that the code of conduct does not allow it,” said this minister, who didn’t want to be identified because petrol, diesel and kerosene price decisions involve clearances at the highest political levels of the UPA. “We will consider it after the elections. However, the price cut cannot be substantial and will depend upon the crude oil price stability. The problem is not with petrol and diesel. The oil marketing companies are losing money on the sale of kerosene and liquefied petroleum gas (LPG).”
It is unclear if this minister has enough clout on his own to guarantee that the government will indeed cut prices even though the political dividend from such a move makes it likely that the ruling coalition will want to reduce prices in a still high inflationary environment, thus depriving the opposition parties of at least one hot button issue.
Welcome move? The Centre had raised domestic fuel prices in June with crude hovering at $123 then; it is down to about $50 a barrel now. Ramesh Pathania / Mint
The margins of the oil marketing companies such as Indian Oil Corp. Ltd (IOC), Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd have turned positive on petrol and diesel sales. The companies are earning Rs9.86 on the sale of per litre of petrol and 70 paise on per litre of diesel. However, due to the subsidy component involved in the sale of kerosene and 14.2kg of domestic LPG cylinder, they are losing Rs22.40 on per litre of kerosene and Rs343.49 on each cylinder. The companies are losing Rs110 crore per day.
The government raised domestic fuel prices by about 10% on 4 June, when international crude oil price touched $123 (Rs6,150 today) per barrel. Global crude prices were around $50 a barrel on Friday, having rebounded slightly from three-year lows that saw prices fall some 11% during the week.
With global crude oil prices cooling to $48 per barrel from a high of $145.31 per barrel on 3 July, the government has been increasingly under pressure from within the Congress party and the UPA allies.
The losses from selling fuel below cost at state-run oil marketers are estimated at Rs1,22,710 crore in the current fiscal year and the government-owned oil marketing companies posted an overall loss of Rs12,891.19 crore for the second quarter of the year.
“Even with the cooling of the crude prices, we are losing Rs61 crore per day. Even though the prices have come down, we are holding two months’ inventories of crude oil for September and October at $95 per barrel and $69 per barrel, respectively. This will be only exhausted by December-end. So, going forward, even this quarter looks bleak,” said S.V. Narasimhan, director (finance) at IOC, India’s largest oil refiner and marketer.