PSUs may get to decide oil prices

Revert to price band after global rates stabilise, says Aiyar

Petroleum minister Mani Shankar Aiyar today said the government might grant limited freedom to public sector oil companies to revise prices of petrol and diesel under a price band mechanism once international prices stabilised.

"We will like to revert to the price band mechanism (fixing auto fuel prices in a narrow 10 per cent band) when international prices stabilise," he said in an interactive session with the Forum of Financial Writers.

Aiyar will also approach the Cabinet with a proposal to increase the price of petrol by Rs 2.85 a litre and that of diesel by Re 1 in view of the increase in international oil prices besides changes in the duty structure proposed in the budget 2005-06.

"We will be going to the Cabinet with full implications of the Budget and it is for them to decide," he said without adding any details. The government had introduced the price band in August last year but abandoned it soon after international prices shot up to $56 a barrel.

International oil prices, he said, are expected to stabilise by April-May once the US administration puts in place policies to curb runaway fiscal and budgetary deficit, and when the winter demand ends.

"Prices will be relatively lower than 2004 but below the levels of 2003... But there should be greater stability in international market," he said. "As soon as we get signs of stabilising international markets, we should be able to put together a domestic pricing policy."

Aiyar said the change in excise had put a heavy burden on the oil companies. Not passing on the increased incidence of excise will result in around Rs 264 crore (about Rs 106 crore on petrol and Rs 158 crore on diesel) loss to them every fortnight.

Finance minister P Chidambaram announced a combination of specific and ad-valorem excise duty for petrol and diesel. It was made 8 per cent and Rs 5 a litre for petrol as against 16 per cent excise duty.

In the case of diesel, excise was increased by Rs 1.25 a litre besides maintaining 8 per cent ad valorem rate. The road cess was increased by 50 paise for both diesel and petrol.

Aiyar says that the duty changes left the oil firms poorer with the public sector refineries losing Rs 1,200 crore a year as their duty protection rate got reduced by 1 per cent with cuts in customs duty on products.