Govt to overhaul oil subsidy mechanism

While it is certain that diesel and cooking gas (LPG) prices are set to rise further, the timing and quantum of this hike will depend on the government’s new subsidy-sharing mechanism. The Centre is currently giving finishing touches to the policy to compensate the under-recoveries incurred by state-owned oil marketing companies (OMCs) for selling cooking and auto fuels below the cost price, a senior petroleum ministry official said.

OMCs including Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp currently lose over R225 crore per day for selling diesel, domestic LPG and kerosene below their imported cost, with global crude oil prices hitting $92 a barrel.

A decision to increase diesel and cooking gas prices would only fuel inflationary pressures and hit consumers already bearing the brunt of high food inflation, the official said. Diesel has a weight of 4.67% in inflation, while LPG contributes 0.91%.

Following its consultations with the finance ministry, the petroleum ministry has assured that revenue losses or under-recoveries of oil firms — estimated to touch R68,361 crore this fiscal year— will be “fully compensated.” The revenue loss of OMCs “would be adequately and fully addressed,” oil secretary S Sundareshan said.

Upstream firms Oil and Natural Gas Corp (ONGC), Oil India and GAIL India will shoulder 33% of OMCs’ subsidy burden, while the ministry is pitching for half of the revenue loss to be provisioned for in the Budget.

A EGoM meet to consider a R2 per litre hike on diesel and R20-20 per LPG cylinder on December 30 was postponed at the last moment.


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