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Petrol prices may be linked to international crude rates

Petrol prices may be linked to international crude rates
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First Published: Tue, May 27 2008. 01 08 AM IST
Updated: Tue, May 27 2008. 01 08 AM IST
New Delhi: The government is 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, which last week touched an all-time high of $135 (Rs5,751) a barrel, has forced the government to mull options to save state-run firms that expect a revenue loss of Rs2 trillion this fiscal on sale of petrol, diesel, domestic LPG and kerosene.
“One of the options being considered is deregulating petrol prices,” a government 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,” said the official requesting anonymity.
Petrol is currently being sold at a loss of Rs16.34 a litre and diesel at Rs23.49 per litre.
Deregulating petrol price would mean that its prices would move in tandem with international prices.
The official said the move is being considered after the finance ministry declined petroleum ministry’s request for lowering customs duty on crude oil to zero from 5% and that on petrol and diesel to 2.5% from the current 7.5%.
The petroleum ministry had also asked for lowering of excise duty on the two fuels but finance ministry is not obliging.
Petrol has negligible impact on inflation and so even if it is deregulated, it would not contribute to the three-and-a-half year high inflation rate of over 8%, he said.
But diesel is used by the transport industry and replicating the same for the fuel would have a cascading effect on inflation.
However, deregulating petrol would lower the revenue losses by just Rs20,000 crore. Half of the current estimates are on account of diesel rates.
The petroleum ministry is not in favour of compensating Indian Oil Corp. (IOC), Bharat Petroleum Corp. Ltd (BPCL), and Hindustan Petroleum Corp. Ltd (HPCL) beyond one-third of the total under- realisation on fuel sales.
It is also for limiting the burden on upstream firms such as Oil and Natural Gas Corp. Ltd (ONGC) at 33% as had been in the previous year and wanted the rest of the revenue loss to be met through either a price increase or duty rejig, the official said.
Currently, the government meets a little more than half of the under-realization through oil bonds.
Retailers do not favour oil bonds as they do not 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 per litre cut in excise duty on petrol would result in government foregoing Rs1,380 crore revenue annually and the same on diesel would result in Rs5,270 crore revenue foregone per year.
If the import duty on crude oil is eliminated, it would help lower the Rs2.72 trillion oil import bill of 2007-08. A reduction in customs duty levied on petrol and diesel would help oil companies cover some of their losses.
Petrol currently attracts Rs14.35 a litre excise duty and diesel Rs4.60 per litre.
IOC, BPCL and HPCL are faced with 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 the borrowing limit, the official added.
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First Published: Tue, May 27 2008. 01 08 AM IST