Govt hikes petrol, diesel prices; taxes untouched

The government has decided to raise prices of petrol by Rs 2 per litre and diesel by Re 1 per litre after deliberating on the move for over six months.

The increase in prices, with only six weeks to go before the financial year ends, will reduce the retail losses of the government-owned oil marketing companies by 1.2 per cent from the projected Rs 71,800 crore.

The price rise pushed up the stocks of the public sector oil marketing companies "" Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) "" by up to 14.82 per cent on day when the benchmark Sensex rose by 4.82 per cent.

Prices of petrol and diesel were last raised in June 2006, when the average price of the basket of crude oil that Indian refineries buy was $67 per barrel. Currently, the price of the basket is averaging $76.43 per barrel in the financial year so far. 
 

OILY BURDEN
	2007-08	2006-07
Under-recoveries	71,800*	56,000
Oil bonds	40,900	24,000
Upstream discount	24,000	20,000
Marketing companies	6,100	4,800
Consumers	840	7,056
* projected                                       (in Rs cr)

"We tried our best not to raise fuel prices but with global oil prices touching $100 per barrel in early January, it was impossible for the oil marketing companies to bear the burden of losses," Petroleum Minister Murli Deora said.

The government, however, has decided not to cut taxes on petrol and diesel, a move demanded by the Left parties. In Delhi, taxes account for almost 52 per cent of the cost of petrol and 32 per cent of the cost of diesel.

The Cabinet Committee on Political Affairs today also decided that 57 per cent of the projected annual Rs 71,000 crore retail losses for the oil marketing companies would be borne by the government through issue of oil bonds. This is up from the 42.7 per cent that the Cabinet had cleared in June last year.

Deora said that the fuel price rise, which will be effective from midnight today, will have only a marginal impact on inflation which rose to 4.11 per cent for the week ended January 26 from 3.93 per cent in the previous week.

Higher diesel prices increase prices of essential commodities as transportation costs rise. Diesel sales are around four times that of petrol.

The price rise will result in IOC adding around Rs 420 crore to its sales in the rest of the financial year, while BPCL and HPCL will together add around Rs 420 crore.

"The real benefit from this price hike will be next year. In the 12 months of the next financial year, it will make up around 10 per cent of the total under-recoveries," Petroleum Secretary MS Srinivasan said.

The upstream oil companies such as Oil and Natural Gas Corporation (ONGC), Oil India and GAIL India will give discounts worth Rs 24,000 crore to the oil marketing companies, up from Rs 20,000 crore last year. The oil marketing companies themselves will bear a similar burden of 8.4 per cent.

"A burden of around 8 per cent suits us, as that has been the our mandate," said IOC Chairman Sarthak Behuria, adding that the price hike alongwith the increased value of oil bonds would now help the oil marketing companies meet their investment commitments.