Centre to consider fuel price deregulation in six weeks

Written by Agencies | New Delhi | Updated: May 30 2009, 06:48am hrs
Oilflare
The government will consider deregulating petrol and diesel prices, as well as increasing rates of natural gas sold by state firms, said Murli Deora, who began his second term as petroleum minister on Friday. The issue of deregulation is being discussed and it will be put up to the Cabinet for a decision, he said after taking charge of the ministry.

Asked about the timeframe in which a decision is likely, he said: In about six weeks. Jitin Prasada, one of the Congresss young turks, took charge as minister of state for petroleum.

The move to deregulate fuel prices, which one state oil executive said would trigger a 5% rise in prices if made today to match crude oil at $65 a barrel, is one of many important reforms expected from the government, and suggests it is ready to take difficult, but important steps in order to balance growth with fiscal prudence.

Pricing freedom would increase tax revenue and ease massive subsidy bills, helping to offset the cost of economic stimulus measures that have stretched public finances and widened the fiscal deficit to 6% of GDP.

While few had expected it to move so quickly on such a sensitive issue, analysts said it was likely to win government approval. However, the proposal would not affect subsidies on kerosene, used for home cooking.

They will be able to pass it in the Cabinet, said DH Pai Panandikar, president of RPG Foundation, an economic think tank. Its not necessarily going to hit the people now because oil prices are low at the moment.

Oil prices rose above $65 a barrel on Friday, taking gains to 27% in Maythe biggest one-month rise in a decadeand analysts say the market seemed focused on the bullish sentiment and brighter macroeconomic outlook.

You have to bite the bullet. Subsidies seem to be so out of control. How can you run the government on a wide fiscal deficit asked Mridul Saggar, chief economist at Kotak Securities. You run the risk of faster price adjustment, larger price adjustment, but then if you dont do that, the cost is in terms of growth as well as interest rates.

Deora, who became the first person to be reappointed petroleum minister, will introduce a rural LPG distributorship in the first 100 days. At present, 9,350 LPG agencies cover only 50% of the population and we want to extend the coverage to every nook and corner, he said. The Gramin LPG Vitrak scheme would be launched at locations having potential of up to 1,000 refills per month.

Also on Deoras menu is raising rates of natural gas produced by state-run firms like ONGC, which is losing about Rs 2,500 crore annually on selling the fuel at artificially reduced rates. Gas will follow fuel prices, he said.

But his first priority would be getting the eighth round auctions of oil & gas exploration blocks on track by obtaining a tax holiday for natural gas production. The round was suspended because of investor concerns in the absence of a seven-year income-tax holiday. We hope to relaunch Nelp-8 in a months time, Deora said.