Oil firms likely to get limited price freedom

Ministry, Oil companies discuss Rs1-2 price band.

The petroleum ministry is likely to allow the oil companies to change prices in a Rs 1-2 band per litre. This means that the companies will be allowed to adjust petrol and diesel prices within this band in tandem with international rates, without having to refer to the ministry.

The first round of meetings between the oil companies and the ministry was held on June 25, when the companies were asked to formulate a band. Executives from state-owned oil companies will present a formal proposal over the next few days outlining multiple options of autonomous price adjustments in a Rs 1-2 band. Indian Oil Corporation's pricing committee is coordinating the meeting.

Since no decision has yet been taken on the price autonomy issue, petrol and diesel prices are unlikely to be revised on June 30.

An executive with an oil company claimed several parameters were being looked at. "The price band will vary if we consider one-, two- or three-year average international prices. Considering the volatility in international prices and several constraints in increasing local prices, we can expect our freedom to raise prices will be capped at Rs 2 a litre," he said.

Further, if the government takes into account the volatility in the international prices of crude oil, the price band for autonomous adjustments is "likely to change further".

"The band will also differ if the government decides to stop cross-subsidising certain petroleum products, which might result in a softening of the price of petrol," an executive with an oil company said.

Oil industry sources, however, pointed out these were suggestions to the ministry. "There are several hurdles. The proposal will be first discussed and cleared by the oil ministry and then vetted by other ministries as it involves excise, Customs and a few other issues," they said. They also said "the government should allow factual market prices to rule. There should be no restriction as in the case of naphtha prices."

The Congress led -United Progressive Alliance increased the price of petrol and diesel on June 15 by Rs 2 and Re 1 a litre, respectively. Cooking gas prices were simultaneously hiked by Rs 20 a cylinder.