New Delhi: The government may hike petrol, diesel, cooking gas and kerosene prices simultaneously as early as next week, with Oil Minister S Jaipal Reddy on Friday saying "difficult and painful" decisions need to be taken. On the political opposition to raising fuel rates, Reddy said fuel pricing was a classic case of "politics defeating economics".
The Ministry, however, is wary of the fact that if oil firms are allowed to raise petrol prices on Friday or Saturday, the political opposition of the unpopular move may force the hands of the Cabinet into not hiking diesel, LPG and kerosene rates when it may meet next week.
"There are no immediate proposals to raise prices of various oil products including petrol," Reddy told reporters.
With oil firms losing a record Rs 560 crore per day on sale of regulated diesel and cooking fuels and another Rs 16 crore a day on petrol, the Oil Ministry is pushing for raising rates once the Monsoon Session of Parliament ends on Friday.
"We are of course facing crisis of unpredictable magnitude... Our oil companies will lose huge nearly Rs 200,000 crore (if rates are not raised)," Reddy said, adding that steps need to be taken to reduce this deficit. "We have to take some difficult, painful decisions."
FACTS ABOUT FUEL PRICES
New Delhi: The government may hike petrol, diesel, cooking gas and kerosene prices simultaneously as early as next week, with Oil Minister S Jaipal Reddy on Friday saying "difficult and painful" decisions need to be taken.
On the political opposition to raising fuel rates, Reddy said fuel pricing was a classic case of "politics defeating economics".
Reddy said he had moved a note for the consideration of the Cabinet Committee on Political Affairs (CCPA) explaining the precarious situation facing the oil sector. "It is my duty as a minister to bring facts to the notice of CCPA. When will it meet, I have no idea".
State-owned fuel retailers losing over Rs 5 per litre
State-owned fuel retailers are losing over Rs 5 per litre on sale of petrol, a commodity which was freed from government control in June 2010 but whose rates haven't moved in tandem with cost.
They sell diesel at a loss of Rs 19.26 a litre, kerosene at Rs 34.34 per litre and domestic LPG at Rs 347 per 14.2-kg cylinder.
"I have circulated terrible facts (about prices to Cabinet). Subsidy burden is very high... there is no escaping the very difficult and painful part of taking a decision on petroleum prices," Reddy said.
Govt may limit supply of subsidised LPG cylinders to 4-6 per household
Besides hike in diesel, cooking gas and kerosene prices, the Oil Ministry is also seeking to limit supply of subsidised LPG cylinders to 4-6 per household in a year.
The ministry's proposal to CCPA also includes barring households with income of more than Rs 50,000 per month or Rs 6 lakh in a year from getting subsidised LPG cylinders.
The Cabinet committee is likely to consider the hike on the first occasion it meets.
"It is for the Cabinet Secretary to fix the meeting," Reddy said, when asked when the CCPA was supposed to meet.
Indian Oil Corp (IOC) Chairman R S Butola said even though the oil companies were free to raise petrol prices, they hold "consultations" with the government.
"We are losing Rs 16 crore per day on petrol," he said, adding that the three oil marketing companies were holding discussions on the timing of raising petrol price with the government.
Diesel, domestic LPG and PDS kerosene rates have not been changed since June 2011 even though cost of production has soared 28 percent.
Oil PSUs are losing Rs 560 crore per day on sale of diesel and cooking fuel at present, and are forced to resort to short-term borrowings to meet funds needed for importing crude oil (raw material for making fuel).
Borrowings of the three state fuel retailers, who in the first quarter reported biggest net losses in India's corporate history, shot up to Rs 1,57,617 crore at end of June from Rs 1,28,272 crore as on March 31.
Petrol price increase is necessary: IOC chairman
"Petrol price increase is necessary. We have to take decision in consultation with other oil companies and the government," Butola said, adding that IOC lost Rs 950 crore on sale of petrol in the first quarter and has lost another Rs 300 crore since then.
IOC's borrowings are at around Rs 88,000 crore and not far from the ceiling of Rs 1,10,000 crore that the company can borrow, he said.
"We have a deficit of Rs 5,000 crore to Rs 6,000 crore every month. If it is not met, our capability to buy crude oil will be impacted," he said.
Diesel is being sold at a loss of Rs 19.26 a litre, kerosene at Rs 34.34 per litre and domestic LPG at Rs 347 per 14.2-kg cylinder. At current rate, the three firms are projected to lose Rs 1,92,951 crore in revenues in the financial year ending March 31, 2012.
As per the Oil Ministry's proposal, every household would get only 4-6 LPG cylinders at subsidised price of Rs 399 in Delhi and they will have to pay market price of Rs 746 per cylinder for any requirement beyond that.
Besides considering raising diesel, domestic LPG and PDS kerosene rates, the CCPA may also consider a cut in the Rs 14.78 per litre excise duty currently levied on petrol.
IOC, Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) reported a combined revenue loss of Rs 47,811 crore on fuel sales in the first quarter. Of this, upstream firms like ONGC made good Rs 15,061 crore by the way of discount of crude oil they sell to them.
The oil ministry sought cash subsidy for the remaining Rs 32,750 crore but the Finance Ministry has not released any.
In the absence of the subsidy support, IOC reported the highest quarterly net loss by any Indian company at Rs 22,451 crore. HPCL posted Rs 9,249 crore net loss in April-June, while BPCL reported a net loss of Rs 8,836 crore.
Oil firms would most likely post net losses even in the second quarter as the logjam in Parliament over coal blocks allocation has meant that supplementary demands for grants are not approved and no subsidy payout is possible till the next winter session of Parliament in November/December.