INDIA BUSINESS WORLD - FEBRUARY 16th - FEBRUARY 29st - 2008
GOVERNMENT RAISES PETROL AND DIESEL PRICES
After several rounds of deliberations on raising auto fuel prices, the government finally decided to bite the bullet. Despite the Left’s opposition it has raised petrol and diesel prices by Rs 2/litre and Re 1/litre, respectively, from February 15. The current price of petrol in Delhi is Rs 45.52/litre (from the earlier price of Rs 43.52/litre) and diesel is Rs 31.76/litre (from Rs 30.48/litre).
“In line with the principle of equitable burden-sharing, the government has decided a partial restoration in retail prices where in an increase of Rs 2/litre for petrol and Re 1/litre for diesel is being made in the retail selling prices (at Delhi),” petroleum minister Murli Deora said. The Left parties have predictably demanded an immediate rollback, failing that they have threatened to launch nation-wide protests. The matter is expected to be raised in the budget session of the Parliament, which is meeting on February 25.
The effective increase in prices of petrol and diesel could be marginally higher than Rs 2/litre and Re 1/per litre due to adjustments of local levies. Consequently, in Mumbai petrol will now be sold at Rs 50.51/litre (from Rs 48.38/litre) and in Chennai at Rs 49.61/litre (from Rs 47.44/litre). Diesel in Mumbai will now be at Rs 36.08/litre (from Rs 34.94/litre) and in Chennai at Rs 34.40/litre (from Rs 33.30/litre). “Increases in other locations will be made in line with net increase in Delhi, and applicable taxes and duties,” an official in the petroleum ministry said. The decision to increase the fuel price was taken by the Cabinet Committee on Political Affairs (CCPA), which weighed political risks before giving a go ahead to the public sector oil companies. The government could not pass on a substantial part of the impact of surging global crude oil prices to the consumers due to the forthcoming assembly elections in 10 states. The price hike would provide only partial relief to oil companies. Even with the new prices, PSU companies will continue to lose Rs 7.20/litre on petrol and Rs 9.94/litre on diesel. A Rs 2/litre increase in petrol price would provide Rs 180 crore a month by way of additional revenues to the public sector companies while the Re 1/litre hike in diesel would fetch Rs 360 crore a month. The government would, however, bear the largest chunk of the burden of total under-recoveries, estimated to be around Rs 71,808 crore for this fiscal. The government will increase the quantum of oil bonds to be issued to state-run oil retailers to partly compensate them for selling auto and cooking fuel below cost, petroleum secretary MS Srinivasan said. At present, 42.7% of the under-realisation on petrol, diesel, LPG, and kerosene is met by the government through issuance of oil bonds. This percentage has now been raised to 56-57%, he said. Upstream firms such as ONGC and OIL will be expected to bear one-third or Rs 24,000 crore. The burden on retailers like IOC, BPCL and HPCL will be limited to their last year’s level of 8.4% (Rs 6,100 crore) of the total under-realisation and the price hike would cut the losses by 1.2%. On duties cut, Mr. Deora said that the finance minister was fully aware of the situation and he would respond.
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