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Small petro price cuts on cards, reforms on hold

business Updated: Jan 27, 2009 20:41 IST
Anupama Airy
Anupama Airy
Hindustan Times
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The government is poised to effect marginal reductions in petrol and diesel prices soon, but deep cuts involving a policy overhaul might have to wait until a new government takes place after elections whose announcement could only be weeks away.

With no consensus so far in the case of politically sensitive cooking gas prices, the government may shortly announce a price cut of Rs 3 to 4 a litre in the case of petrol and up to Rs 2 a litre for diesel.

“The cabinet note is ready. A decision could be made as early as Saturday (February 1) or could be postponed till February 15 on account of the Prime Minister’s (Manmohan Singh) illness,” said a senior bureaucrat on the condition of anonymity.

State-owned Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum have strongly opposed any reduction in the prices of cooking gas (LPG) as they are still incurring a loss of about Rs 35 per 14.5 kg of a LPG cylinder.

The political establishment within the government, however, is still very keen on a reduction of Rs 20 to 25 per LPG cylinder. Petrol and diesel prices were last cut by Rs 5 a litre and Rs 2 a litre respectively, in December.

There is a new dilemma on reforms. While there is a general consensus in the government on the issue of freeing petrol and diesel prices, the Prime Minister’s Office is understood to have suggested that all major reform initiatives be deferred till a new government assumes office.

Retail prices of petrol and diesel could have come down sharply — by up to Rs 9 and Rs 4 per litre respectively — in case the proposed policy to de-regulate prices is implemented.

Oil companies lose Rs. 33 on every cylinder of LPG. “If auto fuel prices are to be freed, a mechanism for making good the losses on cooking fuel has to be formulated. The petroleum ministry has proposed that these losses be met by issuing oil bonds,” the official said.