The Rs 4 a litre hike in petrol and Rs 2 per litre increase in diesel prices notwithstanding, public sector oil firms will lose Rs 2,880 crore in revenues during July as retail prices were still lower than cost, Petroleum Minister Murli Deora said today.
Responding to a Call Attention Motion in Rajya Sabha on the recent price hike, Deora said the July 2 increase had helped IOC, BPCL and HPCL cut their revenue losses for July from Rs 4,870 crore to around Rs 2,880 crore.
"Even after the price increase, the oil marketing companies are still suffering under-recoveries on petrol and diesel of Rs 1.01 per litre and Rs 0.02 per litre respectively," he said.
The retail selling price of petrol in Delhi at Rs 44.63 per litre after the price hike, was lower than the price prevailing in June 2006 - Rs 47.51 a litre. The retail selling price of diesel is more or less at the level of June 2006.
Explaining the rational behind raising fuel prices, Deora said the price of the basket of crude oil India imports had jumped by about 70 per cent to $69.12 a barrel in June from $40.61 per barrel in December.
"Although the international oil prices have shown a small reduction during the first fortnight of July, the prices have again started rising during the second fortnight and the average price of the Indian basket during July is $63.22 a barrel," he said.
Deora said the Government has been modulating the retail prices of petrol, diesel, domestic LPG and PDS kerosene to protect consumers from the inflationary impact of rising international oil prices.
The revenue loss to state-run firms arising because of keeping retail prices below cost is borne by the Government by way of issue of bonds and upstream firms like ONGC.
"During 2008-09, the Government sanctioned oil bonds of Rs 71,292 crore and the upstream oil PSUs contributed Rs 32,000 crore by way of discounts (oil crude oil they sell to IOC, BPCL and HPCL)," he said.
In addition, Oil and Natural Gas Corp (ONGC) and Oil India Ltd contributed Rs 943 crore through price discounts to oil marketing companies (OMCs) to compensate them for their import losses.
"The OMCs' financial health is a matter of concern to the Government. The OMCs' under-recoveries (revenue loss on fuel sale) have compelled them to borrow heavily, to meet their cash requirements," Deora said adding total borrowings had ballooned to Rs 1,07,115 crore on December 31, 2008 against Rs 66,900 crore as of March 2008.
During 2008-09, the OMCs' interest burden increased to Rs 8,201 crore as against Rs 3,016 crore during the previous year, making a serious dent on their profitability, he said.
Deora said the Government has not increased retail prices of PDS kerosene and domestic LPG to provide relief to poor and the middle classes.
The Government is bearing a subsidy burden of Rs 15.26 a litre on PDS kerosene and Rs 92.96 per 14.2-kg domestic LPG cylinder.
"To ensure uninterrupted supply of these two products at subsidised prices, Government's subsidy burden (considering an average crude oil price of $70 per barrel), is projected to be over Rs 30,000 crore in 2009-10," he said adding the retail price of PDS kerosene had not been revised since March 2002.
Deora said state governments are levying very high rates of sales tax/VAT on petrol and diesel.
"The Ministry of Petroleum and Natural Gas has recently requested all Chief Ministers and the Finance Minister of West Bengal, as the Chairman of the Empowered Committee of State Finance Ministers, on the urgent need to rationalise sales tax on petrol and diesel, so as to reduce the impact of rising international oil prices on the consuming public," he said.
Government, he said, was monitoring the international oil prices closely and would take appropriate pricing decisions to protect the interest of the common man.Replying to clarifications sought, Minister of State for Petroleum and Natural Gas Jitin Prasada said moving from present system of import parity pricing of fuel to cost-plus system would lead to an increase of Rs 1.74 a litre in price of petrol and Rs 0.43 per litre on diesel.
Currently, fuel prices are benchmarked to international rates of equivalent products. Under the cost-plus system, the retail price would be determined by taking the cost of imported crude, transportation cost, import duty, refining cost, marketing and distribution cost and excise and local sales tax/VAT.
Prasada said currently products like gasoline (petrol) and gas oil (diesel) in international market are priced lower than crude oil.
The Government, he said, had reduced customs duty on petrol and diesel from 15 per cent to 2.5 per cent since 2004 and it accounts for just 0.84 per cent of the retail selling price.
Taxes including customs, excise and sales tax constitutes 48.44 per cent of the retail selling price in Delhi and the same in case of diesel was 24.5 per cent.
Members demanded excise duty on the fuel to be reduced to contain the impact of rising international oil prices.
Prasada said state sales tax also constituted a major portion of the fuel price and the rates would be reduced if all state governments agree to reduce sale tax rates.
Seeking clarifications, Leader of Opposition Arun Jaitley wanted to know whether the government was willing to bring down the tax components on petrol and diesel.
Tapan Kumar Sen (CPI-M) claimed that total revenue earned from different taxes on petrol and diesel is three times more than subsidies doled out to help the common man.
O T Lepcha (SDF) wanted to know whether government has a biofuel policy while Mahendra Mohan (SP) asked about the fate of a report of a technical committee set up in 2005.
Rajiv Pratap Rudy (BJP) said the government should not have increased diesel prices when farming activities are on. He was supported by Tarlochan Singh (Independent), who demanded diesel for farmers at cheaper rate.
Sharad Joshi (SBP) supported blending of biodiesel and ethanol while M V Mysura Reddy (TDP) sought a white paper on price fixing mechanism.
Rahul Bajaj (Independent) favoured subsidy in kerosene and gas but not in petrol prices.
Prakash Javadekar (BJP) wanted to know when the hydrocarbon policy is coming. D Raja (CPI) asked whether the government would play a pro-active role in fixing the natural gas price?
Tiruchi Siva (DMK) and Moinul Hassan (CPI-M) also expressed concern over rise in prices of petroleum products.
