Marginal hike in fuel prices likely; Cabinet meet today

Written by Energy Bureau | New Delhi, May 30 | Updated: Jun 1 2008, 02:39am hrs
Consumers of petrol and diesel need not panic. The government has decided to settle on a marginal hike in fuel prices. The Congress core group which met on Friday evening is understood to have also discussed ways to completely avert a fuel price hike by looking at other alternatives.

The Reserve Bank of India in the last two days has already announced a series of measures including increasing the borrowing limits of the oil PSUs from the existing 15% to 25% in order to provide liquidity to these companies for importing crude oil.

The Central Bank on Friday also announced a new window for purchasing oil bonds at a better value than what is being offered by banks. The RBI said it will accept oil bonds worth Rs 1000 crore a day from the oil companies to provide which will provide enough liquidity to the oil companies. Another announcement which is expected from the finance ministry is an SLR status to these oil bonds.

The cabinet is expected to meet on Saturday to take a decision on increasing prices of petrol and diesel along with a minor duty rejig. This follows a week-long consultations at the highest level to work out a bailout package for the cash-strapped oil PSUs due to high global oil prices.

The hike which was being talked about is to increase petrol prices by around Rs 3-5 a litre and diesel by upto Rs 2 a litre. However, sources said the actual increase may only be in petrol prices and diesel prices may or may not be touched at all. However, the price of premium fuels will go up for sure.

A one rupee hike in petrol and diesel price would give Indian Oil, Bharat Petroleum and Hindustan Petroleum Rs 1,036 crore and Rs 4,575 crore additional revenues on the two fuels respectively during the remaining 10 months of the fiscal. The Rs 20 hike in LPG prices would yield Rs 1,200-1,300 crore. There were a series of high level meetings on Wednesday and Thursday. prime minister Manmohan Singh had multiple brainstorming sessions with finance minister P Chidambaram, petroleum minister Murli Deora, planning commission deputy chairman Montek Singh Ahluwalia and external affairs Minister Pranab Mukherjee on ways to discuss the possibilities to curtail the projected Rs 225,000 crore revenue loss on sale of petrol, diesel, domestic LPG and kerosene this fiscal.

UPA chairman Sonia Gandhi has also been consulted.

Besides price rise, customs duty on petrol and diesel may be cut from current levels of 7.5 %, and at least Re one a litre reduction in excise duty on the two is also on cards.

A one rupee cut in excise on petrol would result in revenue loss of Rs 1,380 crore to the government and a similar reduction on diesel would decrease revenues by Rs 5,270 crore.

The package being worked out for oil retailers, which faced a situation where they would not have no cash to import crude in next few months, also includes raising the share of upstream companies like ONGC in subsidising fuel.

In 2007-08, Oil and Natural Gas Corp, GAIL and Oil India chipped in Rs 25,706 crore by way of discounts on crude and LPG they sell to retailers -- IOC, BPCL and HPCL. This year, it will increase to about Rs 40,000 crore. A similar amount may come by way of oil bonds from the government, the source said. Last fiscal, the government issued the three retailers oil bonds worth Rs 35,290 crore to partly compensate them for selling fuel below cost.