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Fuels headed for partial decontrol

The government, juggling consumer and political interests with fiscal discipline and the future of public sector oil giants, is expected to announce the blueprint of a new fuel pricing policy in the Budget.

business Updated: Feb 19, 2010 22:22 IST
HT Correspondent

The government, juggling consumer and political interests with fiscal discipline and the future of public sector oil giants, is expected to announce the blueprint of a new fuel pricing policy in the Budget.

The policy, coming in the wake of the Kirit Parikh committee’s recommendations on fuel prices, is being framed to correct anomalies in the pricing of petroleum products – petrol, diesel, cooking gas and kerosene – which enjoy government subsidies.

Government sources said a partial decontrol of petrol and diesel prices to give freedom to oil companies to fix auto fuel prices within a specified band is likely to be part of this policy, currently being given final touches by the ministries of petroleum and finance.

“The Budget would only make an announcement about such a policy and the details would be announced by the nodal ministry,” said a senior government official. “It is proposed to allow oil companies to fix petrol and diesel prices within a crude oil price band with the upper limit being $90-100 a barrel. Any increase in oil prices above this limit would trigger government intervention.”.

The Budget is also expected to unfold the details of the roadmap to limit subsidy on cooking gas (LPG) and kerosene “strictly to the poor and needy.”

However, it is proposed that prices of cooking gas may still go up by Rs 25 to 30 per cylinder while that of kerosene by Rs 1-2 per litre.

A cess on sports utility vehicles (SUVs) is also likely.

The partial freedom to oil companies for fixing petrol and diesel prices will make petrol dearer by Rs 4 per litre and diesel by Rs 2 per litre. However, the move will also facilitate the entry of private sector companies in the fuel retail business, ushering in competition in the fuel retailing sector.

“Competition always leads to reduction in prices and is beneficial for the end user,” the official said. A complete decontrol of fuel prices is, however, being held back, he added. “The actual hike in fuel price may follow the announcements in the Budget as they will have to be cleared by the Cabinet before being implemented.”

The three oil marketing PSU companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd--are between them likely to incur revenue losses of Rs 45,571 crore on auto and cooking fuels in the current financial year.

Of this, the marketing companies' revenue loss on kerosene and cooking gas alone is estimated at Rs 31,574 crore.