The government is expected to take a decision on petrol and diesel prices next week, officials said on Tuesday as state-owned oil marketing companies mounted pressure for a steep hike in retail prices of the auto fuels.
A hike in government-controlled prices of petrol and diesel is “inevitable,” Petroleum Secretary MS Srinivasan said after a meeting with chief executives of oil companies. “The situation is alarming and we want to stem the rot at the beginning.”
The Petroleum Ministry has sought a hike of Rs 10 per litre of petrol and Rs 5 per litre of diesel. But officials tracking the issue said the government would eventually settle for moderate increases given that inflation has already crossed 8 per cent and elections in several states are due later this year.
The government will likely issue more oil bonds and cut custom and excise duties on crude and oil products. It may also allow raising the borrowing limits for oil PSUs, a petroleum ministry official said on condition of anonymity.
Although global crude prices have almost doubled in the past year, the Indian government has not allowed oil companies to pass on only a fraction of it to consumers. That has resulted in huge under recoveries for the oil companies, which now run the risk of running into losses despite the government’s effort to bail them out through issue of oil bonds.
India imports about 70 per cent of its total crude requirement and the Indian basket of crude is now hovering around $125 per barrel.
If no remedial measures ate taken, under recoveries of oil companies could total more than Rs 2,00,000 crore in 2008-09, almost three times the level in 2007-08. “A decision needs to be taken immediately,” Petroleum Minister Murli Deora said. "The Prime Minister is concerned about the financial health of the PSUs.”
He said Prime Minister Manmohan Singh’s Principal Secretary, TKA Nair, has been asked to discuss the issue with secretaries of finance and petroleum ministries along with the heads of the three oil companies – Indian Oil Corp, Bharat Petroleum Corp, Hindustan Petroleum Corp.