Fuel prices may go up, decision likely next week

Even as the meeting of the group of ministers (GoM) on fuel prices remained inconclusive for the second time on Thursday, consumers can expect an announcement on increasing the prices of petrol and diesel sometime next week.

Indications coming from the government officials, after the GoM meeting, are that while an increase in the price of cooking gas (LPG) seemed unlikely, the prices of petrol and diesel prices could go be increased by up to Rs 2 per litre.

There is also a possibility of an announcement on increasing the quantum of oil bonds, being issued to the state-owned oil marketing firms (OMCs) in lieu of their under-recoveries on sale of sensitive petroleum products in the domestic market. The GoM is meeting again on Monday to take a final view on the issue and an announcement on the fuel price hike can be expected on Thursday after the Cabinet meeting.

As a marginal hike in the fuel prices was insufficient to cap the increasing losses of the OMCs, officials said petroleum minister, Murli Deora asked the GOM to increase the quantum of oil bonds being issued to the OMCs.

“The GOM’s solution to the problem is likely to be a combination of a marginal fuel price hike, a re-jig in duties to contain the impact of surging international crude oil prices and increasing the quantum of oil bonds to the OMCs,” a senior government official said.

The duty re-jig could include a cut customs duty on crude oil and petroleum products or a Re one a litre excise duty reduction on petrol and diesel.

A 5% cut in customs duty on crude oil and petroleum products and a Re 1 per litre reduction in excise duty on petrol and diesel would result in Rs 15,530 crore annual reduction in revenues for the central government.

Four of the seven-member Group of Ministers on fuel prices, headed by External Affairs Minister Pranab Mukherjee attended the meeting on Thursday. State-owned OMCs–IOC, BPCL and HPCL?are currently lose Rs 10.6 a litre on petrol , Rs 11.6 per litre on diesel, Rs 331.4 per LPG cylinder and Rs 19.89 a litre on PDS kerosene. Petrol and diesel prices were last raised in June 2006 when crude oil was at $67 a barrel. It is at $92 a barrel this year. LPG prices were last raised by Rs 20 per cylinder in November 2004 when crude was at $34 a barrel. Kerosene prices have not been changed since 2002 when crude was at $23 per barrel.

During April-September, oil bonds worth Rs 11,257 crore were issued to the oil companies and Rs 8,788 crore assistance was received from upstream companies like ONGC and GAIL. A Re one per litre increase in petrol price would give Rs 90 crore a month additional revenue to public sector oil companies. A similar hike in diesel would fetch Rs 360 crore a month. A Rs 10 per cylinder increase in LPG prices would result in Rs 58 crore additional revenues every month.