After months of deliberations and despite opposition by Left parties, the government on Thursday finally raised the price of petrol by Rs 2 a litre and that of diesel by Re 1 a litre. The new prices come into effect from midnight on Thursday, petroleum minister Murli Deora said.
The decision to hike fuel prices was taken at a meeting of the Cabinet Committee on Political Affairs. It was also decided not to lower the customs or excise duties on crude and petroleum products. However, further oil bonds would be issued to state-owned oil marketing companies to compensate them for losses from the sale of petroleum products at below cost price.
The hike in fuel prices comes after 22 months, even though international crude prices have soared in the interim. Petrol and diesel prices were last raised in June 2006, when crude was at $67 a barrel, against the existing $92 a barrel. LPG prices were last raised by Rs 20 a cylinder in November 2004 when crude was at $34 a barrel. Kerosene prices have not been changed since 2002, when crude was at $23 a barrel.
As reported earlier by FE, officials said finance minister P Chidambaram was not in favour of the petroleum ministry demand for a Re 1-a-litre reduction in excise duty on petrol and diesel. As part of a compromise formula cleared by the Prime Minister last week, Chidambaram suggested that fresh oil bonds be issued to oil marketing companies instead.
At present, 42.7% of the under-recoveries of these companies on petrol, diesel, LPG and kerosene are met by the government through oil bonds. This has now been raised to around 57%, said petroleum secretary MS Srinivasan.
The government will, accordingly, issue bonds worth over Rs 40,212 crore to Indian Oil, Bharat Petroleum and Hindustan Petroleum in the current fiscal. Simultaneously, upstream firms like ONGC and GAIL will chip in 33% (Rs 23,700 crore) and the remaining part of the Rs 71,808-crore under-realisation would be borne by retailers.
A Rs 2-a-litre increase in the price of petrol will yield additional revenues of Rs 180 crore a month to the public sector oil companies, while Re 1-a- litre hike in diesel will fetch Rs 360 crore a month. ?For the remaining part of the fiscal, we anticipate additional revenue of Rs 840 crore,? Srinivasan said.
State-run oil firms lose Rs 10.57 a litre on petrol, Rs 11.56 a litre on diesel, Rs 19.89 a litre on kerosene and Rs 331 on each LPG cylinder.
Earlier, a group of ministers, headed by external affairs minister Pranab Mukherjee, had left the decision on fuel prices to the Cabinet after the panel was divided on the issue. Deora insisted on a duty cut rather than price hike, while Chidambaram was opposed to any pre-Budget duty review.
Shares of Indian Oil rose 14%, the highest since June 15, 2006, to close at Rs 536.75 at the close of BSE trades on Thursday. HPCL shares climbed 15% to Rs 297.60 and BPCL shares rose 11 % to Rs 465.