Oil ministry puts up price hike proposal

The petroleum ministry has approached the Cabinet Committee of Economic Affairs seeking its approval for an "appropriate increase in the prices of petrol, diesel, kerosene and LPG", while simultaneously calling for a more equitable sharing of subsidies on the four products.

The oil ministry is infact of the view that the government should bear the entire burden of the revenue losses incurred by the oil marketing companies, after the increase in prices is effected.

Based on the average price in the first week of June, petrol in Delhi is being is sold at Rs 5.03 per litre below the desired market price (Rs 43.52 a litre currently), diesel at Rs 3.80 per litre below desired prices (current price is Rs 30.48), kerosene at Rs 14.19 per litre (current price is Rs 9.05) and LPG at Rs 171.97 per cylinder (current price is Rs 294.75).

Official sources revealed that the subsidy burden, if not borne entirely by the government, should be shared by the exchequer, the upstream oil companies (like ONGC) and the oil marketing companies (like IndianOil) "in line with an equitable sharing formula through current provisions and appropriate modifications in the subsidy scheme".

Currently, the subsidy on the four petroleum products is shared equally by the government (through oil bonds), the upstream oil companies and the marketing companies.

The petroleum ministry is also planning to ask the finance ministry to approve oil bonds worth around Rs 19,000 crore for the financial year.

The total under-recoveries, or losses that the marketing companies incur from selling petroleum products at government-controlled prices, in this financial year is projected to be around Rs 52,162 crore.

The Rangarajan Committee had recommended that subsidy of petroleum products should be done away with. The committee also said that oil bonds should not be used to compensate oil companies for retail losses. We are now only asking for an equitable sharing of the subsidy burden, the sources added.

Some of the recommendations of the Rangarajan Committee on pricing of petroleum products, such as shifting to trade parity pricing of products, have been implemented.

Others, such as doing away with the subsidy on petroleum products and not taking recourse to oil bonds are yet to be implemented.

In 2005-06, oil bonds worth Rs 11,500 crore were issued. This number more than doubled to Rs 24,121 crore in 2006-07, taking the total amount in the previous two fiscal years to Rs 35,621 crore.

The oil ministry is also of the view that subsidised kerosene should be given only to families living below the poverty line. This, the ministry says, will reduce adulteration of kerosene in diesel.