Oil price hike likely soon

The government will take a call on increasing oil prices soon after the Parliament session ends on May 23.

The government will look at a mix of measures that include increasing petrol and diesel prices, tinkering with the duty structure, using the profits of upstream companies like ONGC to subsidise the under-recoveries of public sector oil marketing majors like Indian Oil Corporation.

While kerosene may be spared, diesel and petrol prices might go up by Rs 2.5-Rs 3 per litre. Petroleum minister Murli Deora has been against any increase in the prices of the domestic cooking gas.

Although the petroleum ministry's demand for a reduction in duties has been opposed by the finance ministry, Left parties have strongly supported it.

With duties being ad-valorem, the proceeds from it would be much more than what was projected at the beginning of the year, the ministry has said.

The finance ministry had made projections on the basis of the international crude oil price of $60 per barrel while is at around $70 a barrel at present. It is also likely that the government may look at issuing bonds to bridge a part of the gap or give soft loans.

However, it is unlikely that the Oil Industry and Development Board (OIDB) cess will be used immediately for meeting the subsidy demand, as it will require a change in the OIDB Act.

The petroleum ministry has projected that the public sector companies will suffer from under-recovery to the tune of Rs 73,512 crore in 2006-07 if the current scenario continued.

This is almost 90 per cent more than the under-recovery of Rs 39,000 crore incurred by the oil marketing companies last year.

While the loss because of selling petrol below cost was Rs 9.33 a litre, it was Rs 10.43 a litre for diesel, Rs 17.16 a litre for kerosene and Rs 114.45 for domestic cooking gas.

When fuel prices were last revised in September 2005 international crude oil prices were reigning at $60 a barrel, but the prices of products were benchmarked at $51 a barrel.