New Delhi: The government is believed to be considering decontrolling petrol prices, a move that may see rates being hiked by Rs16-17 a litre, but diesel will continue to be sold at a subsidized price.
The relentless rise in international oil prices that last week touched an all time high fo 135 dollars a barrel has forced the government to mull options to save state-run firms, which expect a revenue loss of Rs2,00,000 crore this fiscal on sale of petrol, diesel, domestic LPG and kerosene.
“One of the options being considered is deregulating petrol prices,” an official said. “The country’s preferred auto fuel diesel will, however, continue to be subsidized even though a marginal Rs2-3 a litre hike in prices may be announced.”
Petrol is currently being sold at a loss of Rs16.34 a litre and diesel at Rs 23.49 a litre.
Deregulating petrol price would mean its prices would move in tandem with international prices.
He said the move is being considered after the Finance Ministry declined the Petroleum Ministry’s request for lowering customs duty on crude oil to nil from 5% and that on petrol and diesel to 2.5% from current 7.5%.
The Oil Ministry had also asked for lower excise duty on the two fuels but the Finance Ministry is not obliging.
Petrol has a negligible impact on inflation and so even if it is deregulated it would not contribute the 3-and-half year high inflation rate of over 8%, he said.
Diesel, on the other hand, is used by transport industry and price deregulation would have cascading effect on inflation.
However, decontrolling petrol would lower revenue losses by just Rs20,000 crore. Half the current estimates are due to diesel rates.
The Petroleum Ministry is not inclined to compensate Indian Oil, Bharat Petroleum and Hindustan Petroleum beyond a third of the total under-realization on fuel sales.
It is also for limiting the burden on upstream firms such as ONGC at 33%, as was teh case last year, and wants the rest of the revenue loss to be met through either price increase or duty rejig, the official said.
Currently, the government meets a little over half the under-realization through oil bonds. Retailers don’t favour bonds as they don’t provide the liquidity needed to run operations.
A Re1 a litre hike in petrol price would give oil firms Rs90 crore a month more revenue while the same quantum in diesel prices would result in Rs360 crore revenue a month.
A Re1 cut in excise duty on petrol would result in governnment foregoing Rs1,380 crore revenue a year and the same on diesel would mean Rs5,270 crore foregone.
Crude currently attracts an import duty of 5% and if this is eliminated it will help lower the Rs2,72,699 crore oil import bill of 2007-08. Customs is levied on petrol and diesel at 7.5% and its reduction would help oil companies cover some of their losses.
Petrol currently attracts Rs14.35 a litre excise duty and diesel Rs4.60 per litre rate.
IOC, BPCL and HPCL are losing Rs16.34 a litre on petrol, Rs23.49 per litre on diesel, Rs305.90 per LPG cylinder and Rs28.72 per litre on kerosene.
The three firms face a huge liquidity crunch and are borrowing Rs3,500 crore a month to meet day-to-day expenditure. With borrowings touching Rs65,000 crore, the companies are now talking to banks to raise borrowing limit, the official added.