State-owned OMCs to cartelise price of deregulated petrol

IOC, BPCL and HPCL are likely to act as a cartel and revise petrol prices every fortnight on the basis of fortnightly average of crude oil prices

State-owned oil marketing companies (OMCs) Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) will continue to act as a cartel while revising petrol prices every fortnight in the free pricing regime, which looks set to kick in as early as this week, reports PTI.

Petrol prices were freed from government control last month, resulting in a Rs3.50 per litre rate hike in Delhi.

However, the modalities of subsequent retail price adjustments — in line with changes in raw material cost — were left for the industry to decide.

Though diesel prices were raised by an ad-hoc Rs2 per litre, it continues to be under government control.

"It makes no sense for public sector undertakings (PSUs) to compete among themselves if only petrol prices are being freed. Oil marketing companies (or state-run fuel retailers) will continue to coordinate on the pricing of petrol," said a top oil PSU executive.

IOC, BPCL and HPCL are likely to revise petrol prices twice a month on the basis of fortnightly average of crude oil prices.

Stating that the modalities are likely to be finalised this week, he said that pump rates may be revised at least once this month.

The three companies would have a uniform rate for petrol in particular cities or locations, and it would change on the same dates.

"We will not announce dates of revision in advance to avoid hoarding of the fuel. Instead of changes in rates on the 1st and 16th of every month, we will revise prices on any day of the month," he said.

"For example, prices can be revised on the 29th or 2nd of the month, instead of the usual practice of revising on the 1st. Similarly, rates may change on 14th or 17th instead of the 16th," the executive added.

Oil secretary S Sundareshan said the change needed in the retail selling price of petrol will be known on 15th July (based on the average cost of oil in the first fortnight), and the modalities would flow thereof.

"OMCs have been consulting among themselves (on the modalities), and now, discussions would be held at the ministry level. Very shortly, modalities like frequency of price changes will be announced," he said.

Sources said that the three PSUs have already held discussions with private retailers — Reliance Industries (RIL), Essar Oil and Royal Dutch/Shell — on modalities such as frequency and intervals at which prices would be revised.

Initially, the oil ministry was not in favour of fortnightly revisions and the same line was adopted by market leader IOC. However, most of the other retailers favoured fortnightly revisions in retail rates to reflect changes in cost of raw material (crude oil).


Those in favour of a 15-day cycle for price adjustment argue that oil firms already have a mechanism of calculating the desired fuel prices on the 1st and 16th of every month, and the same just needs to be passed on to the consumers now.

Also, rates of aviation turbine fuel (ATF), which was freed from government control in 2002, change with cost every fortnight.

The BJP-led National Democratic Alliance (NDA) government had decontrolled petrol and diesel prices on 1 April, 2002, and they were being revised every fortnight for nearly 21 months. The practice was stopped a few months before the general elections in May 2004, and the controls were back in place when the then United Progressive Alliance (UPA) came to power.

An Empowered Group of Minister (EGoM), headed by finance minister Pranab Mukherjee, decided to free petrol and diesel prices from government control on 25th June. While petrol was decontrolled with immediate effect, diesel was put on hold for the time being.

Freeing of petrol price resulted in a Rs3.50 per litre hike in petrol prices while diesel rates were raised by an ad-hoc Rs2 per litre, instead of the Rs3.80 per litre increase required to align them with the international market.

Also, domestic liquefied petroleum gas (LPG) prices were increased by Rs35 per 14.2 kg cylinder. Kerosene rates were hiked by Rs3 per litre to cut the government\'s fuel subsidy.


Panel for interest rate deregulation in small savings schemes

The panel, to be headed by RBI deputy governor Shymala Gopinath, will review the structure of the National Small Savings Fund and give recommendations on making schemes more flexible and market-linked

The government has set up a committee to look into deregulating interest rates on small savings instruments such as public provident fund schemes, a move aimed at linking them to market rates, reports PTI.

The panel, to be headed by Reserve Bank of India (RBI) deputy governor Shymala Gopinath, will review the structure of the National Small Savings Fund (NSSF) and give recommendations on making schemes more flexible and market-linked.

The committee, suggested by the 13th Finance Commission, will also review the existing terms of loans extended by the NSSF to the Centre and states and recommend changes required in lending arrangements.

Other investment opportunities for the collections, from small savings and repayment proceeds of NSSF loans extended to states and the central government, will also be monitored.

Interest on various small savings schemes such as Public Provident Fund (PPF) and the Post Office Monthly Income Scheme are administered by the Centre, and currently stands at 8% on five to seven years' maturity, slightly higher than fixed term deposits of banks of comparable tenure.

The Centre gives each state a part of the amount raised through small savings as a 25-year loan carrying 9.5% interest. However, there is a moratorium of five years on the principal amount.

The Finance Commission, headed by former finance secretary Vijay Kelkar, said that when interest rates on loans from these schemes are higher than market rates, it causes an increase in subscription to these instruments — thereby increasing the flow of loans to states.

With overall borrowings capped by Fiscal Responsibility and Budget Management (FRBM) targets, the states cannot take recourse to open market borrowings. Thus, states may not be able to benefit from lower interest rates even if market rates go down as they are saddled with high inflows from high-cost loans derived from small savings.

States are allowed to go for market borrowings only till the fiscal deficit widens to 4% of the gross domestic product (GDP).

States have also raised concerns on the tenure of the loan. There is significant mismatch between the maturity period of five to seven years for most small savings instruments and the 25-year tenure of loans extended through these schemes.

Further, the statement said that administrative arrangements like the cost of operation and incentives offered on small savings investments by states will also be looked into.

Other members of the committee include senior officials in the finance ministry, principal secretary (finance), government of Maharashtra; principal secretary (finance), government of West Bengal; Indian Council for Research on International Economic Relations (ICRIER) director and CEO Rajiv Kumar and Corporation Bank CMD JM Garg.


IL&FS Transportation unit wins contract from Portugal government

Mumbai-based IL&FS Transportation Networks Ltd said its Spain-based unit Elsamex SA and Portugal-based unit, Intevial Gestao Integral Rodoviaria SA (Intevial Portugal) in a consortium with local firms has emerged as the preferred bidder for maintenance of six roads contracts in various states in Portugal for three years.

The estimated total contract value is worth about Rs338.84 crore and the share of Elsamex SA and Intevial Portugal is Rs259.31 crore.

On Tuesday, IL&FS Transportation shares closed 1% higher at Rs307 on the Bombay Stock Exchange, while the Sensex ended at 0.3% up at 17,985 points.


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