The first official announcement on freeing the domestic prices of petrol and diesel from government control came on Friday, when Petroleum Minister Murli Deora said that his ministry is considering de-regulation of the fuel prices.
“The issue of deregulation is being discussed and it will be put up to the Cabinet for a decision,” Deora said after taking charge of the ministry. “It should happen in about six weeks.”
At current crude oil prices of $60 a barrel, it would mean an increase of petrol prices by Rs 2 a litre, diesel prices will fall by 50 paise a litre.
Within minutes, shares of oil marketing companies like Bharat Petroleum and Indian Oil Corp were up 8-10 per cent, as the stock market expected them to be able to price their products at market rates.
Retail prices of auto fuels (petrol and diesel) and cooking fuels (LPG and kerosene) are currently regulated in India and oil companies do not have the freedom to align them in line with the international oil prices.
The de-regulation of fuel prices is aimed at giving freedom to the oil marketing companies (OMCs), which have to sell
auto and cooking fuels in the domestic market at prices lower than their cost prices.
In order to balance the interests of consumers, the freedom to oil companies to fix petrol and diesel prices will be subject to global crude oil prices remaining around $75 a barrel, a senior official said.
Petroleum ministry sources said that in the event of crude oil crossing the $75, the government would intervene in the market and reduce the burden on the common man by sharing revenue losses of retailers between the treasury and upstream oil and gas companies.
Deora also hinted that after the decontrol of fuel prices, the government will also look at correcting domestic gas prices.
“If this happens, companies will make good profits because thy will be able to fully recover the costs of fuels sold by them in the domestic market,” Amitabh Chakraborty, president equity, Religare Enterprises said. “In addition, the government will also be able to reduce its subsidy and control its growing fiscal deficit.”