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Could the petrol price hike have been avoided?

Did the government manipulate public opinion to justify the increase in petrol prices on November 3?

business Updated: Nov 20, 2011 22:56 IST
Anupama Airy
Anupama Airy
Hindustan Times

Did the government manipulate public opinion to justify the increase in petrol prices on November 3?

Company insiders say that timely government intervention could have prevented state-owned oil marketing companies — Indian Oil, Hindustan Petroleum and Bharat Petroleum — from posting biggest-ever losses in the july-September quarter that added up to Rs 14,000 crore.

The timing seems choreographed. Had a letter of compensation — saying the government will release Rs 15,000 crore to oil companies as subsidy for selling diesel, cooking gas and kerosene cheap — reached the firms in time, the losses would have been capped.

But the letter from finance ministry came on November 11, two days after Indian Oil announced a Rs 7,485 crore loss. If the letter had been released on time, the company’s losses would have been insignificant.

Had it been released 10 days earlier, it would have salvaged all three companies.

Technically, the Rs 1.80 a litre petrol price hike, on November 3 — the second in less than two months — has nothing to do with government support as petrol is a decontrolled commodity. But the delay showed up the companies as being in the red, and helped build public perception that since their financial health was not sound, they had no choice but hike prices.

“In any case, the finance ministry does not release cash immediately but issues a letter of subsidy as quarterly compensation to oil companies,” said a former oil company chief, seeking anonymity. “So why did the finance ministry not release the letter in time to prevent them from posting such losses?”

An oil company finance director was livid: “You should ask the finance ministry why they released it late.” The issue of timely release of subsidy by the finance ministry has been repeatedly taken up with the government, he said. “Subsidy should be provided as cash and not just a letter for accounting purposes. We are yet to receive the Rs 15,000 crore cash against a similar letter issued in the first quarter.”

First Published: Nov 20, 2011 20:41 IST