Get set for oil price shock

With the Indian crude oil basket at $59.42 a barrel, the government is preparing the ground for increasing petroleum prices.

Petroleum Minister Mani Shankar Aiyar Thursday said consumers would have to bear some burden of the under-recoveries suffered by the oil marketing companies. He is likely to meet Left leaders for building political consensus on the issue next week.

Based on international prices for petrol and diesel applicable for the second quarter beginning July 2005, an increase of Rs 3.23 per litre in the price of petrol and an increase of Rs 5.52 for diesel are required. Petrol costs Rs 40.49 a litre in Delhi and diesel is sold at Rs 28.45. The present retail prices of petrol and diesel are based on the FOB (free-on-board) prices of $54.18 a barrel for petrol and $54.50 for diesel.

Replying to a question in the Lok Sabha yesterday, Aiyar said the prices of kerosene remained unchanged since April 2002 while the price of domestic LPG was marginally increased in November 2004.

"The government's income has also taken a hit of Rs 4,000 crore while under-recoveries of oil marketing companies can reach Rs 40,000 crore this year, up from Rs 20,000 crore last year. In such a scenario, some burden will have to be borne by consumers," Aiyar said during the question hour.

"The relentless increase in international prices has put an unduly large burden on OMCs, threatening to make them sick. The government is continuously monitoring the price situation with a view to taking appropriate remedial measures," he said.

He also said there was scope for reduction in duties but the matter needed to be examined by the finance ministry.

Aiyar sought cooperation from state governments saying they should adjust sales tax to reduce the burden on consumers. He said, unfortunately, sales tax, a state subject, had not undergone any change in the last 13-14 months.

Aiyar said the government would take a decision on the question of raising the prices, if warranted, only after thorough consultations with its allies.

Even after a Rs 2.50 a litre increase in petrol prices and an increase of Rs 2 in diesel prices in June, public sector OMCs incurred a total cash loss (without considering contributions by the upstream PSUs) of Rs 1,516 core in July.

Indian Oil Corporation lost Rs 564 crore, Hindustan Petroleum, Rs 343 crore, Bharat Petroleum, Rs 425 crore, and IBP, Rs 184 crore.