Re 1 rise in petrol, diesel prices likely

Petrol and diesel prices may be raised by up to Re 1 per litre each on August 15, the next due date for fuel price revision, in step with the surge in global oil prices. The hike will have been higher, but for the 10 per cent price band fixed by the government, say industry sources.

International gasoline (petrol) prices have climbed to $49.35 a barrel this month from $45.35 per barrel in April-July, while gasoil (diesel) has shot up by $7 a barrel to $47 per barrel.

The hike comes close on the heels of a Rs 1.10 per litre increase in petrol prices in Delhi and Rs 1.42 per litre increase in the diesel price announced on July 31, the first revision after the government allowed state-run oil firms to fix prices within a 10 per cent price band.

The price band is fixed based on the mean of average landed price of the fuel during the previous quarter and the average landed price during the past one year.

"Last time diesel prices should have gone up by Rs 2.63 per litre, but the band prohibited us. This time around, we will hit the ceiling of the band in both petrol and diesel," sources said, adding the oil industry had lost Rs 195 crore this fiscal selling the two fuels below cost.

As per the new pricing policy, whenever the required hike in petrol and diesel prices is more than the specified price band, the government has to cut duties to moderate the prices.

"We told the government a day before the July 31 price rise that the band would be breached and it needed to act. So far we haven't seen any action," they said.

The oil industry wants the government to cut excise duty on petrol and diesel to soften the impact of the spike in international oil prices on the domestic markets.

So far, Petroleum Minister Mani Shankar Aiyar has written to Finance Minister P Chidambaram only on cutting the excise and the Customs duty on domestic cooking gas LPG (liquefied petroleum gas) and kerosene.

For petrol and diesel, he has suggested levy of fixed or specific duties instead of the present practice of imposition of ad valorem taxes.

"Cut in the excise duty on petrol and diesel will not impact central revenues in anyway as the government had been mopping up a higher amount due to the ad valorem duty structure, which unlike specific duties is a percentage over the cost," sources said.

In case of specific duties, a fixed value in terms of rupees per litre is levied on the fuel with a view to ensure that rise in cost does not have any cascading effect on the retail selling price.

Sources said oil companies made a marketing margin of only Rs 0.39 on sale of a litre of petrol and Rs 0.40 per litre of diesel. Against this, the government mops up Rs 12.343 by way of the excise duty on every litre of petrol sold in Delhi at Rs 36.81 and Rs 3.509 on a litre of diesel priced at Rs 24.16.

In 2003-04, the marketing margins were negative as the previous government had barred oil companies from raising fuel prices in the run up to the general elections.

"We made up on lost marketing margin through high refinery margins," sources said.