The government looked set to raise petrol and diesel prices by Rs 3-4 a litre and Rs 2 a litre respectively this weekend to curtail losses of state-owned oil firms even as the Reserve Bank of India extended them a helping hand by easing borrowing limits.
Congress President Sonia Gandhi, who met Prime Minister Manmohan Singh in New Delhi this evening, is believed to have discussed the proposal for a retail fuel price rise that is being pushed for by the petroleum ministry.
The day, which was packed with high-octane political action, started with Manmohan Singh holding an hour-long discussion with Petroleum Minister Murli Deora, Finance Minister P Chidambaram, Planning Commission Deputy Chairman Montek Singh Ahluwalia and External Affairs Minister Pranab Mukherjee, the government's key troubleshooter.
"Hopefully, we will have a solution by May 31... The prime minister and finance minister saw papers of revenue losses and the price increase in the international market. They realised we need to help (the oil companies) on a war-footing," Deora told reporters after the meeting.
In the evening, the RBI issued a circular allowing banks to lend up to 25 per cent of their capital funds to state-run oil marketing companies, instead of the single borrower exposure limit of 15 per cent for other sectors. In exceptional cases, the ceiling can be relaxed further to 30 per cent of a bank's capital funds. Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum, which have received oil bonds to partially meet losses in the past, will now be eligible for more bank finance.
Raising auto fuel prices is part of a multi-pronged relief package being finalised by the government. A reduction in excise and customs duties and more bonds for oil marketing companies are the other elements of the package.
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The oil companies are facing a gross subsidy bill of around Rs 235,000 crore this year, compared to Rs 77,000 crore last year on account of the inability to raise auto and kitchen fuels prices despite rising crude prices, which touched $135 a barrel recently and are threatening to curb supplies if a relief package is not worked out soon.
Last week, RBI had eased the valuation norms for special bonds, like the ones issued to oil companies, in a bid to make them attractive for banks and other investors. The move was aimed at helping oil firms generate liquidity as they complain that the bonds do not have many takers.
On Wednesday, Indian Oil, the largest marketer, which reported a loss of Rs 414 crore in the fourth quarter of 2007-08, said that it will run out of money in six months if the present situation continued.