Oil price hike awaits PM's nod

The government is expected to unveil a new pricing formula for petrol and diesel by June 15 after it gets an approval from Prime Minister Manmohan Singh later this week.

Singh is likely to meet Finance Minister P Chidambaram and Petroleum Minister Mani Shankar Aiyar on Friday to discuss the formula. Aiyar told reporters after his meeting with Chidambaram the petroleum and natural gas ministry had submitted a new pricing proposal to the finance ministry.

He said the finance ministry would examine the proposal and a final decision on the pricing of the two fuels would be possibly announced by June 15, when the prices come up for review.

While the petroleum ministry is in favour of cuts in excise and customs duty to ensure that the consumers are not forced to shell out more for petrol and diesel, the finance ministry has said that a wide ranging cut would punch a large hole in the tax receipts of the Centre.

It has instead suggested that the oil companies should be able to absorb the impact of the temporary rise in the prices of international crude, which has now begun to move down.

The price of crude oil used by Indian refiners had shot up to $ 38 a barrel towards the end of last Month from around $ 28 a barrel when prices were revised last on December 31.

During the course of the last week prices have come down to $ 34.5 a barrel. Oil companies said a $ 1 increase in the price of crude results in a 60 paise loss for petrol and 40 paise in case of diesel.

Going by the estimate, petrol prices would need to be increased by Rs 4.20 a litre and diesel by Rs 2.80 a litre to stop the oil companies from losing revenue.

Indian Oil Corporation, which accounts for a little over 50 per cent market share, estimated that it would lose Rs 500 crore revenue during the first quarter of the current fiscal since the government has not allowed it to raise retail prices in line with global crude prices.

In recent months the oil companies have been caught in a double-whammy because the international prices of these two cooking fuels have hit the roof even as the government has been slashing subsidies.

"A major part of the profits made from other products and businesses is being used by the oil companies to cushion this," says an oil industry expert.

Whatever the reasons, the oil companies have turned in sterling profits in recent years. Indian Oil Corporation's net profit hit Rs 6,115 crore in 2002-03. That moved up steeply by 14 per cent to Rs 7,005 crore in 2003-04.