Oil, gas price hike imminent: PM

Singh rules out duty cuts; Cabinet to take up issue today.

An increase of Rs 2-3 a litre in the prices of petrol and diesel and a Rs 20-a-cylinder hike in cooking gas prices appear imminent with the government on Monday saying that a reduction in excise duty was not the solution to shield consumers from the impact of rising international crude oil prices.

The Cabinet is expected to discuss a package, including an increase in the prices of petroleum products, left unchanged since June 21. Since the last revision, the cost of crude oil for Indian refineries has risen 26.2 per cent to $62.77 a barrel now. Petroleum Minister Mani Shankar Aiyar is expected to cut short his visit to Bangladesh and return to the Capital tonight.

Prime Minister Manmohan Singh told CPI General Secretary AB Bardhan and CPI (M) General Secretary Prakash Karat in separate meetings that the government could not reduce excise duty as there would be a loss in the direct tax revenue and in dividends from oil marketing companies.

The oil marketing companies posted a net loss of over Rs 1,200 crore during the April-June quarter this year.

Bardhan told reporters that the Prime Minister was of the opinion that international crude oil prices were expected to go beyond the $70-a-barrel mark since demand for oil in the US and Europe would increase ahead of winter. Besides, production in the US has been affected due to Hurricane Katrina.

The Prime Minister also told the Left leaders that the retail prices of petroleum products had not been increased in line with the rising international crude oil prices.

Oil marketing companies have demanded that the petrol price be raised by Rs 7.50 a litre and the price of diesel by Rs 5.50 a litre to cover under-recoveries. The companies have been losing Rs 96 on every cylinder of cooking gas they sell. Under-recoveries from kerosene are estimated at Rs 12 per litre.

Based on the present level of under-recoveries, Indian Oil Corporation is estimating its total under-recoveries to be Rs 7,300 crore between April and September 15, while Bharat Petroleum has said it has lost Rs 1,000 crore since April.

The petroleum ministry was in talks with the finance ministry for revenue-neutral changes in the tax regime. It had also sought a higher allocation from the cess on petrol and diesel that went to the Oil Industry Development Board.

After the meeting, Bardhan told reporters that if the government raised the prices of petroleum products, the Left parties would protest against the move on September 29.

During its meeting with the Prime Minister, the CPI(M) presented a six-point memorandum to Singh, seeking a temporary withdrawal of the additional 50 paise cess on highways construction besides dropping of the excise and Customs changes made in the Budget.

If the CPI(M)'s proposals are accepted, the government will forgo Rs 4,300 crore in Customs and excise revenue. Also, withdrawing the additional fuel cess will mean a Rs 1,500-crore loss over six months to the Central Road Fund.

The CPI(M) also suggested that the government should suspend export benefits for petroleum product exporters, saying this would help it save Rs 2,000 crore.

The party also sought the withdrawal of sales tax concessions to private refineries and wanted the government to recover dues from private refiners like Reliance Industries Ltd.