Fuel price hike soon; LPG, kerosene may be spared

With Parliament's session ending today, the countdown for the fuel price hike has begun. The hike in petrol and diesel prices seems inevitable, with Petroleum Minister Murli Deora scheduled to meet Prime Minister Manmohan Singh on Thursday to discuss the issue.

This is the second time in a span of two weeks that Deora will be meeting the Prime Minister. The earlier meeting was inconclusive, with the finance ministry opposing the petroleum ministry's proposal for any change in the duty structure.

Deora is also scheduled to meet Finance Minister P Chidambaram, members of Left parties, and his party colleagues soon to discuss the hike as part of efforts to build a consensus. The decision on whether to revise fuel prices or not would depend on the outcome of these meetings, he said.

Deora has indicated that prices for domestic cooking gas and kerosene will be untouched. "We are trying to see that in some areas like kerosene and liquid petroleum gas we don't increase prices," Deora told reporters today.

Even while the government is looking at building political consensus on fuel price hike, India's largest private refinery, Reliance Petroleum, has already increased the price of petrol in the range of Rs 2.52 per litre to Rs 2.92 per litre and that of diesel by Rs 2 per litre.

The government too is expected to raise the prices of petrol and diesel in the range of Rs 2-3 per litre, according to petroleum ministry sources. The prices of petrol and diesel were last revised in September 2005.

The ministry has projected petroleum companies' under-recovery of Rs 73,512 crore during 2006-07, if current prices prevail. Of this, a third or Rs 24,500 will be borne by the upstream companies like Oil and Natural Gas Corporation Ltd, Oil India Ltd and Gail (India) Ltd.

The ministry had projected that even if the government had increased the prices of petrol, diesel and kerosene by Rs 5 per litre and that of cooking gas by Rs 50 per litre, the public sector oil marketing companies would bear an under-recovery to the tune of Rs 22,000 crore.

Only a per litre rise of Rs 9.33 for petrol, Rs 10.43 for diesel, Rs 17.16 for kerosene and an increase of Rs 114.45 per cylinder of cooking gas will wipe out the under-recoveries of the public sector OMCs.

As the quantum of rise for petrol and diesel is expected to be much lower than any of the above options, and with Deora insisting on not raising the price of kerosene and cooking gas, the under-recovery burden on public sector oil marketing companies is expected to be much more that Rs 22,000 crore.

In order to bridge the gap, the proposals that are being considered are a further issue of oil bonds, a rejig in the duty structure and asking profit-making upstream companies to contribute more towards subsidy sharing.