Petrol prices may be raised by about Rs 2 per litre and diesel rates cut by Rs 0.30 a litre if a proposal to free auto fuel prices from state control is approved by the incoming Cabinet.
Petroleum Ministry has prepared a draft Cabinet note on freeing petrol and diesel prices from the government control, after which they will be linked to international movements.
"The draft note is ready. It will be put to the new Petroleum Minister when it takes over next week and if he approves, it will go to the Cabinet for consideration," a top Petroleum Ministry official said.
With international crude oil prices hovering between $50 a barrel and $60 a barrel, the oil ministry feels it is the right time to free petrol and diesel prices from government control.
According to the proposal, state-run Indian Oil, Bharat Petroleum and Hindustan Petroleum will be given freedom to fix rates of petrol and diesel till the time crude oil stays below $75 a barrel. If it breaches this mark, the government will step in to protect the interests of consumers, he said.
"At current crude rates, oil companies incur a loss on petrol sales but make marginal profit on diesel. So, if pricing is freed, petrol price will go up by Rs 1.99 a litre while diesel rates will come down by Rs 0.32 a litre," he said.
However, the government will continue to subsidise kerosene and domestic LPG. Currently, oil firms sell kerosene at a loss of Rs 12.27 a litre and LPG at a loss of Rs 91.51 per 14.2-kg LPG cylinder.
The official said if the free pricing of auto fuel is approved, petrol and diesel rates will change, possibly every quarter, in line with movement in international oil prices. IOC, BPCL and HPCL would be compensated out of government budget for selling kerosene and domestic LPG below market rates.
More From This Section
Private retailers like Reliance Industries and Essar Oil have been asking the government to give them a level playing field by freeing fuel prices. They have not been able to match the under-priced rates offered by their public sector counterparts in absence of any subsidy support.
Till last fiscal, the three state-run fuel retailers were compensated through a combination of oil bonds from the government and contribution from oil producers like ONGC for selling petrol, diesel, domestic LPG and kerosene below cost.
The then Petroleum Minister Ram Naik had first deregulated petrol and diesel prices in April 2002 but when Mani Shankar Aiyar became the minister in 2004, the regulations were brought back. During Naik's time, petrol and diesel rates were revised on 1st and 16th of every month.
With price deregulation, the three fuel retailers were estimated to lose Rs 20,600 crore in the fuel sales this fiscal, the official said.
Reliance had shut all of its 1,432 petrol pumps in 2007 as it could not compete with subsidised rates of state-run retailers.
Last month, it symbolically reopened a couple of outlets but is waiting for price deregulation before it begins full fledged retailing.