Price cut hurts oil majors

New Delhi, Nov 29 | Updated: Nov 30 2006, 07:09am hrs
The government on Wednesday announced slashing price of petrol and diesel by Rs 2 a litre and Re 1 a litre respectively from midnight on Wednesday.

Petrol in the national capital will now cost Rs 44.85 a litre, while diesel will come down to Rs 31.25 per litre. The current price of petrol in Delhi is Rs 46.85 a litre and that of diesel is Rs 32.25 a litre.

The price reduction will inflate losses incurred by oil companies on sale of diesel and reduce profits that they earn on petrol sales. While loss on diesel will go up to Rs 2 a litre, profits on petrol would shrink to Rs 2 a litre from Rs4.61.

The chairperson of the UPA and the president of the Congress party, Sonia Gandhi had (on Tuesday) drawn the attention of the government to suitably reduce the prices of petrol and diesel for protecting the interest of the consumers and of vulnerable sections in particular, petroleum minister Murli Deora said in Parliament.

Last week, Deora had stated that the government would consider reducing fuel prices if losses on diesel are wiped out by a suitable fall in international oil prices. He had pegged the trigger for a cut at around $52 a barrel. However, presurre from the Left allies forced the government to announce a immediate price cut.The Indian basket of crude oil is currently trading at $56.8 a barrel. Deora said since the government suffered substantial losses on LPG and kerosene, their prices are not being changed.

Today, the price of international crude are between $56-58 per barrel. The extent of losses, under recovery on petrol and diesel combined has come down. However, the situation with regard to LPG and kerosene continues to remain difficult as the price for these products were not raised, Deora said. Oil firms are losing Rs 14.40 on every litre of kerosene sold through the public distribution system (PDS) and Rs 114 on sale of every 14.5 kg domestic LPG cylinder.

We will continue to provide kerosene at about Rs 9 a litre with a subsidy of about Rs 14 a litre, to the most vulnerable groups. This is in line with the commitment of the common minimum programme (of governance of UPA government), he said. Further, this subsidy on fuel complements the subsidy on foodgrains to families below poverty line (BPL).

Keeping the totality of circumstances in mind, the government under the guidance of Prime Minister Manmohan Singh has decided to reduce the retail selling prices (in Delhi) of petrol by Rs 2 a litre and that of diesel by Re 1 a litre with effect from midnight tonight for public sector oil marketing companies, Deora said. Deora said global crude oil prices have remained high over the last one year putting a heavy burden on the economy and oil firms.