The price hike is being considered as the government scrambles to find ways to meet an unprecedented Rs 160,000 crore deficit expected this fiscal on selling diesel, cooking gas (LPG) and kerosene below their production cost.
Price of diesel, which currently costs Rs 47.15 per litre in Delhi, was last revised on September 14 when it was hiked by a steep Rs 5.63 per litre. Kerosene rates have not changed since June last year and it currently costs Rs 14.79 per litre in Delhi.
"We are left with no choices... there is a need to raise prices. The government is contemplating raising diesel prices by Re one per litre each month for next 10 months to bring retail rates at par with their cost," an Oil Ministry source said here.
State-owned oil companies currently sell diesel at a loss of Rs 9.28 per litre and the hikes over the next 10 months will eliminate all of the losses and absolve the government from providing any subsidy on the nation's most consumed fuel.
The source said price of kerosene could be increased by Rs 10 over a two-year period considering it is being used as a cooking fuel by the poor. The price hike along with promoting use of LPG and natural gas as fuel would help cut consumption of the kerosene by 20 per cent, he said.
While government is likely to raise soon the number of subsidised cooking gas (LPG) from 6 to 9 cylinder of 14.2-kg per household annually, the ministry wanted to have just two rates for the fuel -- a subsidised price and a market rate, instead of four rates presently, he said.
Subsidised LPG costs Rs 410.50 per 14.2-kg cylinder and any household requirement beyond current cap of 6 cylinders is to be bought at near market price of Rs 895.50 per bottle. For non-domestic use, a 14.2-kg LPG cylinder costs Rs 1,156 while a 19-kg cylinder for commercial use is priced at Rs 1,619.
The source said state-owned Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp together in first six months of current fiscal lost Rs 85,586 crore on selling diesel, domestic LPG and kerosene at government-controlled rates which are way below their cost. Of this, the bulk Rs 52,711 crore was on account of losses on diesel.
The government has promised a cash support of Rs 30,000 crore to cover a part of the Rs 85,586 crore revenue loss on fuel sales during April-September. Upstream oil firms like ONGC have chipped in Rs 30,170 crore, leaving a balance Rs 25,417 crore uncovered, he said.
The Oil Ministry, he said, wants Finance Ministry to make up for this shortfall as well as the revenue deficit expected in the remaining six months of current fiscal.
In all, the Oil Ministry has sought Rs 105,525 crore from the Finance Ministry this fiscal to subsidise diesel and cooking fuel.
State-owned fuel retailers are likely to end the fiscal with a revenue loss of over Rs 1,63,000 crore on sale of diesel, domestic cooking gas (LPG) and kerosene at government- controlled rates that are way lower than cost.
Of this, close to Rs 60,000 crore will come from upstream companies Oil and Natural Gas Corp (ONGC), Oil India Ltd and GAIL India. For the rest, the Oil Ministry has asked the Finance Ministry to give cash subsidy.
Upstream firms ONGC, OIL and GAIL share a part of the revenues that retailers lose on diesel and cooking fuel sales. Their share to begin with was 33 per cent of the revenue loss on fuel sales but has slowly risen to 40 per cent.
The source said upstream firms had in 2011-12 made good 40 per cent of the Rs 138,541 crore revenue that Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp lost on fuel sales.
Their Rs 55,000 crore contribution that year compared to Rs 30,297 crore in 2010-11 and Rs 14,430 crore in 2009-10.
In 2011-12, the government gave out Rs 83,500 crore by way of cash subsidy, up from Rs 41,000 crore in 2010-11 and Rs 26,000 crore in 2009-10, he added.