INDIA : Government raises petrol, diesel prices

NEW DELHI: Prices of petrol and diesel have been raised for the first time in 20 months to ease losses at state-run retailers squeezed by a surge in crude oil prices while having to sell fuels cheaply, Oil Minister Murli Deora said on Thursday.

The government raised the price of petrol by Rs 2 a litre, and diesel by Re 1 a litre and would be effective from midnight.

State oil firms have to sell widely consumed fuels at a discount to protect poor consumers and help curb inflation.

The government did not increase prices in 2007 even though crude rose by more than 50 per cent in the year and topped $100.

Oil prices have been volatile through the year and has been hovering around $91 a barrel this week. This has put major pressure on public sector oil companies whose under-recoveries is estimated at Rs 71,800 crore in 2007-08.

As retail prices of auto fuel has been protected from this volatility for more than a year, there is a strong case for fuel price hike.

Sources said the petroleum ministry has been also pressing for a duty restructuring to provide immediate relief to public sector oil marketing companies (OMCs) that are currently losing Rs 9.2 per litre on petrol, Rs 10.94 per litre diesel, Rs 331.34 per cylinder on domestic LPG and Rs 19.89 per litre on PDS kerosene.

Presently, 42.7% of the OMCs under-realisation is met by the government through issuance of oil bonds. It is likely that the government may increase this percentage, a source said. Even public sector upstream companies also share the burden. A 33% of the burden is currently being shared by ONGC, OIL and Gail, while balance is borne by the OMCs; IOC, BPCL and HPCL.

Planning Commission had made a case for increasing prices of petrol and diesel arguing that it was not a good idea to check inflation by keeping prices of petroleum products low.

“If the oil prices remain high on a sustained basis, it will have to be passed on to the consumers…I don’t believe keeping oil prices low is a good way of controlling inflation”, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia told reporters on the sidelines of the World Economic Forum (WEF) meeting in New Delhi on December 4.

The government has refrained from increasing domestic prices of petroleum goods because of political considerations especially forthcoming assembly elections in Gujarat, though the crude oil prices in the international market reached near $100 per barrel. The prices, however, later softened to $93 per barrel.

Even Prime Minister Manmohan at a meeting of the Planning Commission last month expressed concern over rising subsidy bill towards food, fertiliser and petroleum products and said it would go up to Rs 1 lakh crore during the current financial year.

Increasing prices of petrol and diesel also assumes significance in view of the huge losses being incurred by the state-owned oil marketing companies like Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum.

Taking note of the mounting losses, international credit rating agency Moody’s on Monday downgraded the rating outlook of the blue chip oil major IOC from stable to negative.

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