Govt seeks cushion for oil price hike

Revenue from petrol surcharge may come in handy

The petroleum ministry is considering the option of asking the finance ministry to cushion the hike in retail prices of petrol and diesel by dipping into the revenue generated by Rs 6 a litre surcharge on petrol.

The surcharge was imposed in the 2002-03 Budget presumably to provide for subsidy on cooking gas and kerosene since the cross-subsidy mechanism in the petroleum sector through oil pool account was abolished with the dismantling of administered pricing mechanism that year.

Though the subsidy on cooking gas and kerosene has been gradually reduced over the past two years and now stands reduced to one-third of that prevailing in 2002-03, there has been no change in the surcharge.

The finance ministry hopes to generate Rs 6,500 crore this fiscal from the surcharge. The surcharge had yielded Rs 6,200 crore during 2003-04.

The petroleum ministry is of the view that in case a correction is carried out in the surcharge in view of the reduced subsidy, there may not be any need for a price-hike.

Petrol and diesel prices were last revised by public sector oil marketing firms on December 31-January 1 and the international prices of oil have been steadily going up after that. Brent, which was hovering around $31 a barrel in the international market on January 1, touched a 13-year high this month and has shot up to around $37.30 a barrel.

Public sector oil firms have asked the petroleum ministry to raise petrol prices by Rs 3 a litre and diesel prices by Rs 5 a litre in step with the rise in international crude oil prices.

Added to this is the 20 paise a litre "special purpose cess" that the government is planning to levy on petrol and diesel for financing strategic oil reserves in the country.

The combination of the high international prices of crude and the "special purpose cess" will imply that the oil companies will be looking at a hike of around Rs 3.50 a litre in the case of petrol and Rs 5.50 a litre for diesel.

In case the retail prices are not "subsidised" by the government, or the oil companies refuse to take a hit on their finances, this will be a heavy burden on the consumer, which any new government may not like to impose immediately after assuming power.

Petroleum ministry officials say in case the finance ministry refuses to cushion the price-hike, the government may have to ask the oil companies to stagger the increase over a couple of months so as not to hit the consumer hard.