As diesel price nears global levels, decision on subsidy awaited

Written by ENS Economic Bureau | New Delhi | Updated: Sep 14 2014, 14:11pm hrs
Diesel pricesDiesel prices at retail level have almost touched international prices. (PTI)
Diesel prices at retail level have almost touched international prices, but the oil ministry is still unsure if the parity will be maintained from here on since the Cabinet has to take a political decision on it.

This (gradual parity) was the easier part since the price of crude has come off the highs in the international markets, said an officer declining to be identified.

By the beginning of September, the losses made by oil companies in selling diesel had come down to just 8 paise per litre as the price of Indias basket of crude imports touched $100 a barrel it was 100.97 as on August 29. Since then the international prices have improved to $96.09 for each barrel which has sent the public sector oil marketing companies cheering.

The ministry has prepared a draft for the Cabinet Committee on Political Affairs (CCPA) to decide that henceforth diesel prices would remain on a par with international prices. But with the approach of election dates in Haryana and Maharashtra the officials have not been asked to update the note.

While the government has been allowing a monthly correction in diesel prices to go through, there is consequently still no decision on dismantling of the administered price regime for diesel. The UPA government too had brought in the Cabinet note but had deferred it as the general elections were approaching.

The reason why the government has to take a decision through the CCPA to dismantle the diesel subsidy regime is because it will mean the reversing of an earlier Cabinet decision to retain it. The officials also note that if the decontrol is done then private sector oil companies can resume retail sales of diesel, from which they had withdrawn citing the burden of subsidies.

Once the proposal goes through, the government can then move to rationalise the price of LPG, the official said. The oil ministry makes a loss of Rs 427.82 per subsidised cylinder even after the international prices have softened to such degree, data from the ministrys Petroleum Planning and Analysis cell shows.

Oil ministry officials agree that with international crude prices being highly volatile, they cannot be depended on to give the Centre the room to see through an unannounced end to the subsidy regime unless it is explicitly mandated.

The proposal (for diesel) is with the minister, said an official aware of the developments. Since the decision can at this juncture be accompanied with a cut in the price of the fuel, the ministry is keen that the CCPA gives its nod to the proposal before oil prices harden again.

For instance just in the first fortnight of August the losses made by the oil marketing companies in diesel per litre were Rs 1.78. This is a steep variation and could recur.

Even with the current prices government data shows the aggregate subsidy bill will be Rs 91,665 crore in this fiscal of which the diesel bill is expected to be Rs 28,874.5 crore. In the last fiscal the aggregate oil subsidy bill was Rs 1,39,869 crore.