Oil ministry moots excise duty cut to soften price rise

Proposal for increase in petrol and diesel prices by Re1 or Rs2.

The petroleum ministry has proposed an increase of Rs 1-2 per litre in petrol and diesel prices and a cut in excise duty on them, to offset the impact of surging global oil prices.

Though the required increase in petrol prices was Rs 5.50 per litre and diesel Rs 3.75 a litre, the oil ministry had made a suggestion to the Cabinet that if the excise duty was cut by Re 1 per litre on each fuel, the required hike could be moderated, a senior government official said.

The oil ministry had suggested that excise duty on petrol be brought down from the existing 8 per cent + Rs 13 per litre to 8 per cent + Rs 12 per litre.

On diesel it suggested the excise duty be brought down from 8 per cent + Rs 3.25 a litre to 8 per cent + Rs 2.25 per litre.

The issue was likely to be considered by the Cabinet this month.

The oil ministry had argued that all state-run oil marketing firms, including Indian Oil Corp, BPCL, HPCL and IBP would turn sick if prices were not raised. All the above companies had posted net losses for the first quarter of the current fiscal.

According to the ministry's estimates, IOC's subsidiary IBP would be the first to turn financially sick by as early as next month, since losses arising from the freeze on fuel prices was likely to erode its networth.

BPCL would turn sick in just over a year from now while HPCL would take just 20 months to be referred to the Board of Industrial and Financial Restructuring, Petroleum Secretary SC Tripathi had written to Cabinet Secretary BK Chaturvedi recently.

IOC, the country's biggest oil company, would turn sick in 35 months from now if petrol, diesel, LPG and kerosene prices were not changed in line with the spurt in global oil prices.

IOC, which reported its first ever net loss of Rs 54.2 crore in April-June quarter, suffered an estimated loss (including depreciation) of Rs 744 crore in July alone.

BPCL netted a loss of Rs 400 crore over Rs 431.3 crore loss in the first quarter, while HPCL saw Rs 475 crore loss in July on top of a Rs 507.89 crore net loss in the April-June quarter.