Token hike in diesel price even as oilmin asks for larger raise

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SummaryMoily asks PM for big fuel price hikes to tackle Rs 180,000-cr revenue losses

While oil minister Veerappa Moily has written to Prime Minister Manmohan Singh making a case for a large hike in prices of various petroleum products, oil marketing companies on Saturday effected a routine hike in prices of diesel by 50 paise per litre and petrol by R2.35 per litre. Non-subsidised LPG rates were also hiked.

A bigger hike in prices of fuels — LPG and diesel — is expected after the current session of Parliament ends on September 6.

Moily had written to the PM to take steps to tackle a record R180,000 crore of losses arising from a dipping rupee and surging oil rates. The oil minister, who had on Thursday met finance minister P Chidambaram on the issue, on August 30 wrote to Singh, saying that without a price increase the government will have to shell out a record R97,500 crore to subsidise diesel and cooking fuel.

“If the present position persists, total under-recovery (revenue loss) would reach a level of R180,000 crore in the current fiscal, compared to R161,000 crore during 2012-13,” he wrote.

A 25% drop in rupee value has resulted in losses on diesel sales widening to R10.22 per litre despite prices being raised by 50 paise a litre every month since January. This, coupled with R33.54 a litre loss on kerosene and R412 on sale of every 14.2-kg LPG cylinder, translates into a total revenue loss of R180,000 crore this fiscal, he said, adding that even after upstream firms like ONGC chip in R70,500 crore, a gap of R97,500 crore would be left.

Moily said a one rupee increase in diesel price will cut losses by R4,522 crore in remainder of the current fiscal, while a R3 per litre increase would trim losses by R13,565 crore. If rates are raised by a one-time R5 per litre, the losses would be cut by R29,390 crore.

The hikes proposed are one-time and outside monthly revision in rates of 50 paise happening since January.

Similarly, a R50 per cylinder increase in LPG rates would trim cooking gas losses by R2,604 crore. A possible R2 per litre hike in kerosene price would cut losses by R1,014 crore. The three price increases together would bring down government’s subsidy outgo to R50,928 crore, he argued.

Every one rupee depreciation of the Indian rupee against US dollar increases the loss of the public sector OMCs on sale of diesel, PDS kerosene and domestic LPG by

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