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Petrol prices may be linked to crude rates

business Updated: May 26, 2008 18:31 IST

PTI
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The government is believed to be considering decontrolling petrol prices, a move that may see rates being hiked by Rs 16-17 a litre, but diesel will continue to be sold at a subsidised price.

The relentless rise in international oil prices that last week touched an all time high fo 135 dollars a barrel has forced the government to mull options to save state-run firms, which expect a revenue loss of Rs 200,000 crore this fiscal on sale of petrol, diesel, domestic LPG and kerosene.

"One of the options being considered is deregulating petrol prices," an official said. "The country's preferred auto fuel diesel will, however, continue to be subsidised even though a marginal Rs 2-3 a litre hike in prices may be announced."
Petrol is currently being sold at a loss of Rs 16.34 a litre and diesel at Rs 23.49 per litre.

Deregulating petrol price would mean that its prices would move in tandem with international prices. He said the move is being considered after Finance Ministry declined Petroleum Ministry's request for lowering customs duty on crude oil to zero from 5 per cent and that on petrol and diesel to 2.5 per cent from current 7.5 per cent.

Oil Ministry had also asked for lowering of excise duty on the two fuels but Finance Ministry is not obliging.
Petrol has negiligible impact on inflation and so even if it is deregulated it would not contribute the 3-and-half year high inflation rate of over 8 per cent, he said.

Diesel on the other hand is used by transport industry and replicating the same for the fuel would have cascading effect on inflation.

However, deregulating petrol would lower the revenue losses by just Rs 20,000 crore. Half of the current estimates are on account of diesel rates.

The Petroleum Ministry is not in favour of compensating Indian Oil, Bharat Petroleum and Hindustan Petroleum beyond one-third of the total under-realisation on fuel sales.

It is also for limiting the burden on upstream firms like ONGC at 33 per cent as had been in the previous year and wanted the rest of the revenue loss to be met through either price increase or duty rejig, the official said.

Currently, the government meets a little over half of the under-realisation through oil bonds. Retailers do not favour oil bonds as they do not provide the liquidity needed to run operations.

A Re one a litre hike in petrol price would give oil firms Rs 90 crore a month more revenue while the same quantum in diesel prices would result in Rs 360 crore revenue a month.

A Re one per litre cut in excise duty on petrol would result in governnment foregoing Rs 1380 crore revenue annually and the same on diesel would result in Rs 5,270 crore revenue foregone per year.

Crude oil currently attracts an import duty of 5 per cent and if this is eliminated it will help lower the Rs 272,699 crore oil import bill of 2007-08. Customs duty is levied on petrol and diesel at the rate of 7.5 per cent and its reduction would help oil companies cover some of their losses.

Petrol currently attracts Rs 14.35 a litre excise duty and diesel Rs 4.60 per litre rate. IOC, BPCL and HPCL are losing Rs 16.34 a litre on petrol, Rs 23.49 per litre on diesel, Rs 305.90 per LPG cylinder and Rs 28.72 per litre on kerosene.

The three firms are faced with a huge liquidity crunch and are borrowing Rs 3,500 crore a month to meet day-to-day expenditure. With borrowings touching Rs 65,000 crore, the companies are now talking to banks to raise borrowing limit, the official added.

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