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Oil price hike likely next week

Petroleum Minister Murli Deora says the cabinet is expected to take a decision on raising prices of diesel and petrol after a meeting of the GoM, reports Deepak Joshi.

business Updated: Jan 31, 2008 23:01 IST
Deepak Joshi

The cabinet is expected to take a decision on raising prices of diesel and petrol next week, Petroleum Minister Murli Deora said Thursday after a meeting of the Group of Ministers (GoM) that has been looking into this contentious issue.

"Of course, we discussed price increase issue, but the committee has decided to leave it to the Cabinet,” Deora told reporters.

Agriculture Minister Sharad Pawar, Finance Minister P Chidambaram, and External Affairs Minister Pranab Mukherjee, who heads the group, attended the meeting. Petrol and diesel prices were last increased in June 2006 by Rs 4 and Rs 2 per litre respectively. However, the increase was rolled back in two tranches, in November 2006 and February 2007. The price of crude oil was taken at $56 per barrel when the prices were reduced almost a year ago. The Indian basket of crude oil is currently hovering around $87 per barrel. Public sector oil marketing companies are facing under recovery (revenue loss) of Rs 340 crore per day.

Indications are that the GoM have narrowed down to two options -- raising petrol price by Rs 4 or Rs 2 a litre and diesel by Rs 2 or Re 1 per litre.

“I can't just say that we have firmed up a recommendation and have forwarded it to the Cabinet. The GoM may meet again just before the Cabinet to make a firm suggestion,” Deora added. “We need funds for capital expenditure, refinery expansion and upgradation,” IOC chairman S. Behuria told newsmen.

Under recoveries for the current financial year have now ballooned to Rs 75,000 crore at current prices. The government will be compensating the oil marketing companies through oil bonds to the extent of 42.70 per cent of the under recoveries, while upstream companies will share one-third of the burden. Oil marketing companies will still be losing about Rs 18,000 crore.

An increase of one rupee a litre in petrol price would cut under-recoveries by Rs 90 crore a month on petrol and Rs 360 crore a month on diesel. A one rupee hike in kerosene price would bring losses down by Rs 95 crore per month and if LPG prices were raised by Rs 10 a cylinder, they would come down by Rs 58 crore per month. A reduction in excise duty by Re 1 per litre on petrol and diesel would reduce the under-recoveries of oil companies by Rs 1,380 crore and Rs 5,270 crore respectively.