A hike in the prices of petrol and diesel is now certain, although the amount and timing remains to be seen. With global crude oil prices at $135 a barrel and the Indian oil basket close to $126 a barrel, the petroleum ministry has demanded a Rs 10-a-litre hike in the price of petrol and a Rs 5-a-litre increase for diesel. However, sources said the hike would not be that steep.
Petroleum minister Murli Deora met heads of fuel retailing firms on Friday to take stock of the situation arising from the sudden spike in crude oil prices. He later met Prime Minister Manmohan Singh to apprise him of the Rs 2-lakh crore revenue loss expected this fiscal because of the government bar on raising prices.
The petroleum ministry is also pressing for a cut in customs duty on crude oil and products and a reduction in excise duty on the two auto fuels. But with finance minister P Chidambaram unwilling to part with revenues, the PM has asked his principal secretary to reconcile differences between the two.
?The Prime Minister is very concerned about the financial health of our PSUs and he has asked his principal secretary to call a meeting of the secretaries of finance and petroleum, and the heads of the retailing firms,? Deora told reporters after meeting the PM.
Faced with daily losses of close to Rs 600 crore a day on fuel sales, IOC, BPCL and HPCL are forced to borrow Rs 3,500 crore a month, but will by September see their borrowing limits run out, making them unable to import crude.
A Re 1-a-litre hike in petrol price would give oil firms Rs 90 crore a month more in revenue, while a similar hike in diesel prices would fetch them an additional Rs 360 crore a month. A Re 1-a-litre cut in excise duty on petrol would result in the government foregoing Rs 1,380 crore in revenues annually, and the same on diesel would result in Rs 5,270 crore in foregone revenues.
?The situation is growing alarming,? said oil secretary MS Srinivasan. ?(A price hike) is inevitable,? he added, but did not elaborate. Besides the motor fuel price hikes, sources said the ministry sought customs duty on crude cut to zero, and that on petrol and diesel reduced to 2.5%. The petroleum ministry also wants an excise duty cut on the two fuels. Deora said steps need to be taken immediately, but refused to set a time frame for a decision. ?I just can?t say by when a decision will be taken. It may take three to four days.?
The petroleum ministry seeks to limit the oil bond burden shared by upstream firms like ONGC at 33%, as in the previous year, and wants the government to limit the total amount of bonds issued to a third of under-realisations. Currently, the government meets a little over half the under-realisations through these bonds. PSU retailers, however, do not favour oil bonds, as they do not provide the liquidity needed to run their operations.
Crude oil currently attracts an import duty of 5% and customs duty is levied on petrol and diesel at the rate of 7.5%. India?s oil import bills in 2007-08 stood at Rs 2,72,699 crore. Excise duty on petrol is currently Rs 14.35 a litre and on diesel is Rs 4.60 a litre. ?We are trying our best to see that a solution is found at the earliest. We want to see some action taken immediately,? Deora said.