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Diesel, petrol prices may rise sharply

business Updated: Aug 21, 2013 11:27 IST
HT Correspondent
diesel prices

Brace for a sharp rise in petrol and diesel prices, as the fall in the value of the rupee against the dollar, and the strengthening global oil prices, have sent up India’s crude oil import bill shooting.

Top officials confirmed that that the government is under pressure from state-owned oil companies for a one-time hike in diesel prices by Rs 2-2.50 per litre. Petrol could go up by Rs 1.50 a litre.

"With the rupee breaching the 64 mark against the dollar, it is only a matter of time before we bite the bullet on diesel prices," a petroleum ministry official said.

Any increase in diesel prices over the agreed monthly hike of 50 paise a litre would have to be cleared by the Cabinet, he added..

"Losses on diesel are hovering at close to Rs 11 a litre... a call on a one-time rise in diesel prices by Rs 2.50 to 3 a litre needs to be taken," an official of a leading state-owned oil company said.

The government had in January allowed oil companies to raise diesel rates by up to 50 paise per month till the price reached a level where the losses on account of under-recoveries on diesel sales are wiped out.

The loss on diesel sales had come down to below Rs 3 a litre in May, but fall in the rupee since April has sent under-recoveries climbing again, and it is R11 per litre at present.

Rating agency Moody’s has raised a red flag over oil companies, saying the falling rupee would inflate the fuel subsidy bill, weaken the credit quality of oil companies and put pressure on the fiscal deficit.

A report by the agency said the rupee fall will weaken the credit quality of state-owned oil marketing and upstream oil companies in the current fiscal if the government continues to ask them to share a higher fuel subsidy burden.

"We now expect fuel subsidies for 2013-2014 at Rs 1.4-1.5 lakh crore, up from the R1.3 lakh crore expected in June 2013," said Vikas Halan, Moody’s vice-president and senior analyst. "The currency will remain under pressure until the current account deficit narrows."