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Diesel, LPG rates not to go up as govt fights political battle

business Updated: Aug 30, 2012 17:27 IST

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Diesel and cooking gas (LPG) prices are unlikely to be hiked even after the end of the monsoon session of Parliament next week as the government is wary of taking such a decision at a time when it already has political battles on hand.

Diesel, domestic LPG and PDS kerosene rates, which have not been revised since June last year, were expected to be raised after the Parliament session ends on September 7.

"It is extremely difficult under present circumstances to raise fuel prices," a top government source said in New Delhi. "I am not saying that it is impossible but it certainly does not look feasible at this moment of time".

Even a hike in prices of petrol, a fuel which was freed from government control in June 2010, would be "difficult," he said.

Oil PSUs are losing Rs 3.85 per litre on sale of petrol as global oil prices have firmed up since the last revision in July. Petrol price were last hiked by Rs 0.70 a litre on July 24. It currently costs Rs 68.46 per litre in Delhi and oil firms were hoping to be able to raise rates once Parliament session ends next week.

The government has been in fire-fighting mode since the time Comptroller and Auditor General (CAG) in a report stated that undue benefit of about Rs 1.86 lakh crore was extended to private firms by allocating coal blocks for free since 2004.

The source said while state-owned oil firms are empowered to revise petrol prices, a decision on diesel, domestic LPG and kerosene rates has to be taken by the Cabinet Committee on Political Affairs (CCPA).

Oil firms are losing Rs 450 crore per day on selling diesel at prices that are Rs 15.55 a litre lower than its cost, kerosene at a discount of Rs 29.97 a litre and under selling of Rs 231 per 14.2-kg LPG cylinder.

Oil minister S Jaipal Reddy hinted of Government's desire to make up for the losses incurred by oil firms instead of raising prices when he told Lok Sabha in a written reply that he has sought reduction in excise duty on petrol.

"In order to offset the under-recovery (loss) on petrol, ministry of petroleum and natural gas has taken up the matter with the ministry of finance for bringing down the incidence of excise duty," he said.

The government levies Rs 14.78 a litre excise duty on petrol and it can be lowered in proportion to the losses oil firms incur currently.

"In order to mitigate losses on sale of petrol, oil marketing companies had, inter alia, suggested to the government to either declare petrol as a 'regulated' product temporarily and provide cash compensation for the under-recovery or reduce the excise duty on petrol from Rs 14.78 per litre by an amount equivalent to the under-recovery on petrol," he said.

Not raising prices would mean the government will have to shell out a massive cash subsidy this fiscal to make up losses incurred by state-owned oil firms on sale of diesel, domestic LPG and kerosene. At current rate, the three PSU firms may end the fiscal with a record revenue loss of Rs 1,67,468 crore.

Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp lost Rs 47,811 crore on sale of the three controlled products during the April-June quarter. Of this, about Rs 15,000 crore was made good by upstream firms. The remaining was to be compensated by the government by way of cash subsidy but that hasn't come so far.

In the absence of the subsidy support, IOC reported the highest quarterly net loss by any Indian company at Rs 22,451 crore. HPCL posted Rs 9,249 crore net loss in April-June while BPCL reported a net loss of Rs 8,836 crore.

During 2011-12, the three oil marketing companies lost Rs 1,38,541 crore in revenue on selling diesel, LPG and kerosene at government controlled rates. To make up, the Government gave Rs 83,500 crore in cash assistance, while upstream firms like Oil and Natural Gas Corp chipped in Rs 55,000 crore.

This fiscal, the government may have to give a record Rs 1,00,000 crore in cash subsidy, sources said.

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