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Are petrol and diesel prices up for an increase?

Petrol and diesel prices are set to become dearer as the finance minister Pranab Mukherjee did nothing in his Budget proposals for 2011-12 to curb the impact of soaring global crude oil prices, which have crossed the $110 a barrel mark as a fallout of the political crisis in Libya and Egypt.

business Updated: Feb 28, 2011 19:27 IST

Petrol and diesel prices are set to become dearer as the finance minister Pranab Mukherjee did nothing in his Budget proposals for 2011-12 to curb the impact of soaring global crude oil prices, which have crossed the $110 a barrel mark as a fallout of the political crisis in Libya and Egypt.

In what came as a big surprise for the oil industry, finance minister Pranab Mukherjee, while presenting his budget proposals for 2011-12, completely refrained from mentioning the impact of soaring global crude oil prices on the Indian economy, which is 75% dependent on oil imports to meet its energy needs.

As any spurt in global crude oil prices has a direct impact on domestic fuel prices, it was expected that Mukherjee would announce measures to cut customs duty on crude oil as also excise duty on petrol and diesel.

As the finance minister decided to completely ignore calls to reduce duties to contain the impact of soaring global crude oil prices, oil company officials said the government now has very little choice but to allow an increase in the consumer prices of petrol and diesel.

Following political unrest in Libya and Egypt, international oil prices have already crossed a 30 month high of $110 per barrel.

Much against expectations, customs duty on crude oil remains unchanged at 5% and that on petrol and diesel untouched at 7.5%. This means that excise on petrol will remain at Rs 14.35 a litre and on diesel at Rs 4.60 per litre.

State owned oil companies -- IOC, BPCL and HPCL -- currently reeling under the impact of high global crude oil prices, are at present losing about Rs 2.25 a litre on petrol, a fuel that was freed from government control in June last year.

Oil firms had withheld raising petrol prices in anticipation of a cut in customs and excise duty in the Budget for 2011-12.

Similarly, the oil firms currently sell diesel at Rs 10.74 per litre lower than the imported cost and in the absence of a duty cut, an increase in prices is the only option left to meet a rise in the cost of raw material (crude oil).

Petrol prices have risen Rs 10.44 per litre this fiscal in eight instalments. Petrol on April 1, 2010 cost Rs 47.93 a litre, while today it costs Rs 58.37 per litre.

Diesel prices are, however, lower at Rs 37.75 a litre as compared to Rs 38.10 per litre on April 1, 2010.

Petroleum and natural gas minister S Jaipal Reddy had last week stated he would take the case for an auto fuel price hike to an Empowered Group of Ministers (EGoM) headed by Mukherjee after the Budget.

The timing of the hike remains to be seen as the government may be jittery of raising prices while Parliament is in session. The Budget session of parliament goes for a 3-4 week break from March 18 and rates may be hiked then.

Besides petrol and diesel, oil firms lose Rs 21.60 a litre on PDS kerosene and Rs 356.07 per 14.2 kg domestic LPG cylinder.

The only other way to avoid a fuel price hike would have been higher government subsidy. But Mukherjee has provisioned only Rs 23,640 crore in 2011-12 as oil subsidy, lower than Rs 38,386 crore of the current fiscal.

The budgetary provision for subsidy during 2011-12 will be less than one-fourth of the projected Rs 1,05,000 crore revenue loss that state oil firms anticipate on selling diesel, domestic LPG and kerosene next fiscal.

The revenue loss projected for the 2011-12 fiscal is higher than the Rs 1,03,292 crore under recovery in 2008-09 when global crude oil prices had touched $147 per barrel.

Of this, the government provided Rs 71,292 crore in cash and to contain impact, also lowered customs duty on crude to zero and that on products to 2.5%.

At current prices, oil firms are projected to lose Rs 76,559 crore in the current fiscal, half of which is to come from the government by way of cash compensation. Further, one third would be contributed by upstream firms like ONGC and the remaining absorbed by oil marketing firms.

Of the Rs 46,963 crore revenue loss due to under recoveries during April-December 2010-11, Rs 21,000 crore has come as cash assistance from the government, while another Rs 15,654 crore was provided by upstream firms like ONGC.

The remaining Rs 10,309 crore has been absorbed by Oil Marketing Companies (OMCs).

In 2009-10, Rs 26,000 crore in cash assistance was provided by the government to make up for over 56% of the total Rs 46,051 crore revenue loss.

Upstream firms provided Rs 14,430 crore and the remaining Rs 5,621 crore was absorbed by OMCs.

Fuel consumption is projected to rise by 4.74% to 144.35 million tonnes in the current fiscal from 137.8 million tones in the previous year. During April-December, the consumption was 105.268 million tonnes.