Govt finally bites the bullet on fuel prices

After nearly a week of deliberation, the United Progressive Alliance (UPA) government finally announced a sharp increase in retail prices of petrol, diesel and cooking gas to bail out its cash-strapped oil marketing companies.

Petrol prices will rise by Rs 5 per litre, diesel prices by Rs 3 a litre and cooking gas by Rs 50 per 14.2-kg cylinder from midnight of June 4. The price of kerosene "" the only other subsidised petroleum product that is widely used as cooking fuel by the poor "" was unchanged.

The move was welcomed by the oil companies but triggered the sharpest fall in the 30-share Sensex in the last two months on fears of sharper inflation and an economic slowdown.

The decision, which was taken by the Cabinet Committee on Political Affairs at an 8 am meeting, has attracted sharp protests from across the political spectrum. The Left parties, which vote with the UPA in Parliament, are planning a country-wide week-long protest.

"Due to the relentless increase in international oil prices it has now become necessary for the consumer...to also shoulder a small part of the increased burden," Petroleum Minister Murli Deora told reporters at a midday press conference.

In a special address to the nation late evening, Prime Minister Manmohan Singh described the price rise as the "modest, bare minimum" that was necessary owing to the global oil price shock, adding that the bulk of the burden would be borne by the government and the oil companies.

Calling on the state governments to join the national effort by reducing state taxes and levies on petroleum products, he also made a case for a longer-term, sustainable strategy to deal with high oil prices.

"Issuing bonds and loading deficits on oil companies is not a permanent solution to this problem. We are only passing on our burden to our children," the prime minister said in a speech on national television.

Petroleum Secretary M S Srinivasan said that the rise in prices of the fuels would add 50 to 60 basis points to inflation, last reported at 8.1 per cent, suggesting that the inflation rate could be nearer 9 per cent going forward.

The price increase will result in a relief of Rs 21,123 crore for the oil marketing companies "" Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL).

The three companies faced an under-realisation burden of Rs 245,000 crore this year, over three times more than last fiscal's bill, thanks to record crude oil prices.

The government, however, sought to cushion the impact to the consumer by opting for a revenue hit of Rs 22,660 crore by scrapping customs on crude oil imports, imported petrol and diesel and other petroleum products like aviation products.
   

AUTO, COOKING FUEL PRICES RAISED
	Petrol		Diesel		LPG
	Original	Revised	Original	Revised	Original	Revised
Delhi	45.56	50.56	31.80	34.80	294.75	344.75
Kolkata	48.95	54.29	33.92	37.17	300.50	350.50
Mumbai	50.51	55.88	36.08	39.54	298.00	348.00
Chennai	49.61	55.07	34.40	37.73	288.10	338.10
Figures in Rs per litre except LPG which is Rs per 14.2 kg cylinder 5% customs duty on crude oil scrapped 7.5% customs duty on petrol and diesel slashed to 2.5% 10% customs duty on other petroleum products slashed to 5% from 10%  Re 1 per litreexcise cut in petrol & diesel

OIL STOCKS TANK               (Price in Rs)
	June 3	June 4	%chng
Indian Oil Corp	433.85	418.20	-3.61
BPCL	351.60	324.05	-7.84
HPCL	248.60	241.40	-2.90

Excise duty collections from oil and oil products accounted for almost half the excise collections of Rs 1,25,000 crore and 17.5 per cent of customs duty collection of Rs 1,04,000 crore in 2007-08.

Srinivasan also said the upstream oil companies "" Oil and Natural Gas Corporation (ONGC), Oil India Ltd (OIL) and GAIL "" will bear around Rs 45,000 crore or about 18 per cent of the projected under-realisation, up from Rs 26,000 crore last year.

ONGC, however, was the loan gainer in the Sensex pack even though a larger subsidy bill was slapped on the upstream oil companies.

The marketing companies will also take a hit of Rs 20,000 crore during the year as a result of the cap on retail prices against the Rs 16,000-crore burden they bore in 2007-08.

All these measures will shave off around Rs 107,000 crore from this year's under-realisation burden.

Revenue Secretary PV Bhide said oil bonds worth around Rs 94,600 crore will be disbursed to the oil marketing companies during the current financial year.

This, however, still leaves Rs 43,400 crore of the projected under-realisation unaccounted for.

Srinivasan said that the oil ministry would work out the actual under-recoveries on a quarterly basis and ask the finance ministry for oil bonds, though he declined to offer details on the amount of bonds likely to be issued during the year. "It all depends on oil prices. We will give as much as is required," he said.