The country’s state-run oil companies are “uncomfortable” with a panel’s proposal to link fuel prices to their export value, petroleum secretary R.S. Pandey has said.
The companies will give the government details of how they will be affected, Pandey said on Tuesday after oil minister Murli Deora met the chairmen of state-run refiners in New Delhi to review the panel’s proposals.
Addressing concerns: Union petroleum and natural gas minister Murli Deora (right) at a meeting with CEOs of state-run refiners in New Delhi on Tuesday to review the Chaturvedi panel’s proposals. Photograph: Vijay Verma / PTI
The panel this month recommended increasing petrol prices by Rs2.5 a litre every month until March 2009 and diesel by Re0.75 a litre a month for the next two years.
The government has controlled fuel prices since the 1970s to curb inflation and appease voters in the world’s largest democracy. Delays in implementing the panel’s proposals ahead of national elections due next year will widen revenue losses at Indian Oil Corp. Ltd (IOC) and Bharat Petroleum Corp. Ltd, the nation’s biggest state refiners, which are forced to sell fuels below cost.
The loss of revenue for refiners was Rs48,000 crore in the quarter to June. The companies want the government to take into account the high cost of importing oil when determining prices.
The government increased petrol, diesel and cooking gas prices on 4 June and set up a panel, headed by state planner B.K. Chaturvedi, to assess their impact on the earnings of refiners and oil explorers and the way they are compensated.
The government partly offsets refiners’ losses by issuing bonds and requiring explorers to pay them a subsidy. Refiners may get bonds to cover 50% of the revenue lost in the first quarter, Pandey said. The bonds will be given after parliamentary approval, he said.
Reliance Industries Ltd (RIL), operator of the world’s third biggest refinery, may sell diesel to IOC and other state-run refiners after the oil ministry said it will seek tax breaks for the purchases. The oil ministry will back a proposal to let RIL sell the fuel domestically without losing export-tax incentives, Pandey said.
India imports 70% of its oil needs and is struggling to protect consumers from the recent rise in crude oil prices. Prime Minister Manmohan Singh said on 4 June that oil companies can’t go on incurring losses to shield consumers from rising import costs.
The retail fuel price increase in June was the second in India in two years.