Freight hike means OMCs pay more, so could you

Written by fe Bureau | New Delhi | Updated: Feb 27 2013, 08:39am hrs
The hike in railways freight rate for transporting diesel will increase the under-recovery of oil marketing firms, a move that may see the retail prices go up. In his budget, railway minister Pawan Kumar Bansal increased freight on diesel by 5.79% to R1,041.80 a tonne from R984.80 a tonne at present. Simultaneously, Bansal also increased freight on other fuel products such as kerosene to R937.60 a tonne from R886.30 a tonne and liquified petroleum gas (LPG) to R937.60 a tonne.

Oil firms transport about 32-33% of diesel, LPG and kerosene through the railways and the hike will either have to be passed on to consumers or accounted as under-recoveries which the government would compensate to oil firms.

Bansal proposed that freight rates should be linked to fuel prices, which means every time the freight rates are revised, there will be subsequent revision in diesel and power prices. The government allowed OMCs to increase diesel prices by 45-50 paise a litre every month, at this rate, it may take OMCs around two years to eliminate the entire current under-recovery of R10.27/litre.

Paying market-determined prices for diesel in bulk means the price would be higher by about R10/litre. According to Bansal, the increase in fuel bill during 2013-14 on account of these revisions would be more than R5,100 crore. The under-recovery on diesel is estimated at R1lakh crore by the end of this fiscal.