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Oil at $110: Continuing spike has govt worried

Average Indian basket of crude oil price estimated at $77 per barrel for 2007-08, it hit $101 on Tuesday, reports Deepak Joshi.

business Updated: Mar 12, 2008 21:19 IST
Deepak Joshi

With global crude oil prices touching a record high, alarm bells are ringing in government. Though there are no immediate plans to raise the prices of petrol, diesel, kerosene and domestic liquefied petroleum gas cylinders, public sector oil marketing companies’ under recoveries (revenue loss) are expected to hover around Rs 73,000 crore in the current financial year.

Indian basket of crude crossed $ 101 on Tuesday.

Estimates show that the public sector oil companies—Indian Oil, Hindustan Petroleum and Bharat Petroleum — have be selling petrol Rs 9.68 per litre below trade parity price, while in the case of diesel it is Rs 12.21 per litre, Rs 20.95 for a litre of kerosene. LPG cylinder faces an under recovery of Rs 303.66.

The surge in global crude oil prices may not have an immediate impact on the profitability of public sector oil companies as the government had factored in a major part of the increase while working out a package of oil bonds last month, apart from raising the retail prices of petrol and diesel.

While announcing a marginal increase in the price of petrol and diesel, the government had decided to issue bonds to the tune of 56 per cent of under recoveries while asking the upstream oil companies to compensate marketing companies to the tune of Rs 24,000 crore. Rough estimates show that the government would be issuing bonds worth nearly Rs 33,000 crore.

The government has taken the average price of crude oil in the current financial year to be $ 77 per barrel, while unveiling its package on February 14 this year. With the steep hike in crude oil prices, the average price of crude may touch $ 80 a barrel for the year, officials said.

A major relief for the oil companies has been the government’s decision to shift to specific duty on unbranded petrol and diesel from last year’s trend of a mixture of ad valorem and fixed.

Presenting the Budget for 2008-09, Chidamabaram said, “In order to remove a source of misinformation, I propose to abolish the ad valorem part of the excise duty on unbranded petrol and unbranded diesel and replace the same by an equivalent specific duty of Rs. 1.35 per litre. Henceforth, there will be only a specific duty of Rs 14.35 per litre on unbranded petrol and Rs 4.60 per litre on unbranded diesel. There will be no impact on retail prices.”

In Budget for 2007-08, the finance minister had opted for 6 per cent plus Rs 13 excise duty for petrol and 6 per cent plus Rs 3 per litre on diesel.