Govt mulling Rs3 per litre diesel rate hike after assembly polls

Besides proposing a hike in diesel prices, the EGoM will also consider a Rs3-4 per litre increase in petrol prices and an appropriate increase in domestic LPG prices

New Delhi: The government plans to hike diesel prices by up to Rs3 a litre soon after the assembly elections in five states are over next week, while an equivalent steep increase in petrol rates is also on card, reports PTI.

“An Empowered Group of Ministers (EGoM) headed by finance minister Pranab Mukherjee is scheduled to meet on 11th May to mull on a hike in diesel prices,” a top government official, refusing to be named, told reporters here.

A Rs3-Rs4 a litre hike in the price of petrol, which had been freed from government control last June, is also on the cards immediately after polling in the last phase of assembly elections is completed on 10th May.

“Petroleum ministry officials yesterday discussed with the Election Commission the issue of raising prices before assembly election results are announced on 13th May. The Election Commission is believed to have cleared the move,” he said.

Officially on the EGoM’s agenda is ways of mitigating the over Rs180,000 crore revenue loss state-owned oil firms have projected in 2011-12 on selling diesel, domestic LPG and kerosene at current rates.

An increase in domestic LPG prices may also be discussed at the EGoM meeting that will decide on how the oil firms will be compensated for their losses, he said.

State-owned Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation currently lose Rs 16.17 a litre on diesel and after adding local sales tax or VAT, the desired increase to make rates at par with international prices is Rs18.19 a litre.

The companies have not even raised price of petrol, a commodity which was freed from government control in June last year, in view of the assembly elections in five states like West Bengal and Kerala.

The hike needed to take petrol prices to international parity is about Rs8.50 per litre, but the entire burden will not be passed on to consumers in one go. “Oil companies will be asked to stagger the hike over a couple of months,” the official said.

Besides petrol and diesel, the three state oil firms lose Rs29.69 a litre on kerosene and Rs329.73 per 14.2 kg domestic LPG cylinder.

Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation will “at current international crude oil prices lose Rs1,80,208 crore in revenues on selling diesel, domestic LPG and kerosene below their imported cost in the 2011-12 fiscal,” the official said.

The revenue loss, termed as under-recovery by oil firms, will be the highest ever, even more than what they lost in 2008-09 when crude touched a record high of $147 a barrel.

In addition, they lose about Rs8.50 per litre on petrol, whose rates have not moved in tandem with the imported cost despite its pricing being freed from government control in June last year.

“Losses on petrol are not included in the under-recovery figures for 2011-12 as it is a decontrolled commodity,” the official said.

The basket of crude oil India buys had averaged $83.57 per barrel in 2008-09 and calculations for the current fiscal have been done at the prevailing rates of around $110 a barrel.

“The average price of the Indian basket of crude oil last fiscal was $85.09 per barrel, higher than the 2008-09 average when the government had cut customs and excise duty on crude oil and products to check the impact of rising international rates on domestic markets,” the official said.

Finance minister Pranab Mukherjee has refused to cut customs and excise duty on crude this time to protect his projected fiscal deficit.

“The situation in the current fiscal will be worse, the three PSU oil marketing companies are losing Rs540 crore per day on diesel, domestic LPG and kerosene sales,” he said.

In 2008-09, the government had issues oil bonds worth Rs71,292 crore to the three firms to make up for more than two- thirds of the Rs1,03,292 crore revenue loss. Upstream oil firms like ONGC provided another Rs32,000 crore.

In the 2010-11 fiscal, the three firms lost Rs78,202 crore, but so far, the government has provided only Rs20,911 crore in compensation. The oil marketing firms lost Rs2,227 crore on selling petrol below the imported cost during April and June before its price was freed from government control.

They lost Rs34,384 crore on the sale of diesel, Rs19,566 crore on PDS kerosene and Rs22,025 crore on the sale of domestic LPG.

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