PetroMin rules out decontrolling diesel prices

With food inflation ruling at uncomfortable level, Petroleum Minister S Jaipal Reddy on Thursday ruled out freeing of diesel prices from government control, saying the move was not politically and practically feasible.

"It is not possible (just now)," he said. Decontrol of diesel, as was decided by an Empowered Group & of Ministers (EGoM) in June last year, would mean up to Rs 7 a litre hike in the price of fuel that is used in transport sector and has direct bearing on food and general inflation.

With food inflation ruling at 15.57 per cent, any increase in diesel prices just now would fuel further hike in general prices.

"Let me make it clear, I am in agreement in theory with (Planning Commission Deputy Chairman) Montek Singh Ahluwalia that diesel and other fuel prices should be deregulated but I will request him to examine (such a move) practically and politically," he said ruling out decontrol of prices just now.

Ahluwalia has advocated freeing of diesel prices, on the lines of deregulation of petrol prices, to bring down government subsidies.

Asked if government may consider raising kerosene prices to check its adulteration in diesel, Reddy replied in negative.

"(It is) politically sensitive to remove subsidies, so not feasible," he said.

A litre of kerosene costs Rs 12.32 a litre while diesel is priced at Rs 37.75 a litre. The huge difference makes it lucrative for diverting kerosene from Public Distribution System (PDS) to mixing in diesel.

"Political feasibility means deeper sense means providing commodities to the poorer sections of society. We still have the poorer section of the society depending on kerosene," he said.

Reddy, who last week replaced industry-friendly Murli Deora at the Oil Ministry, has ruled out raising fuel prices as of now.

The government had in June last year decided to make petrol prices market-determined and had stated that diesel rates will be freed from control in due course.

State-owned oil firms Indian Oil, Hindustan Petroleum and Bharat Petroleum are losing about Rs 7 on sales of every litre of diesel and have been pressing for a price hike.

Asked about petrol, whose rates have been raised seven times since June, 2010, including Rs 2.50-2.54 a litre hike of this month, Reddy said there will be no rollback in prices, though he did indicate there will be no immediate hike either.

Oil companies are losing about Rs 1.20 a litre on petrol as crude oil prices have topped $92 a barrel. In addition, they lose Rs 7 a litre on diesel, Rs 366.28 on LPG and Rs 19.60 a litre on kerosene.

No word yet on Rs 10,000 cr demand for oil PSUs: Reddy

S Jaipal Reddy said that his ministry has sought an immediate release of Rs 10,000 crore (Rs 100 billion) in interim compensation to state oil companies, which are losing Rs 290 crore (Rs 2.9 billion) everyday on selling auto and cooking fuel below cost.

"We have urged finance ministry to provide Rs 10,000 crore for third quarter," he told reporters here. "We have not heard anything so far."

Oil Ministry wants the government to bear at least 55 per cent of the total under recoveries (the revenue state retailers lose on selling diesel, domestic LPG and kerosene below cost).

With international crude oil prices topping $90 per barrel, Indian Oil Corp (IOC), Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) are projected to lose Rs 73,600 crore (Rs 736 billion) in revenues in full 2010-11 fiscal.

So far, the Finance Ministry has committed to make up only one-third of the revenue losses from the budget.

The Finance Ministry has so far sanctioned Rs 13,000 crore (Rs 130 billion) to cover part of under-recoveries in the first half of the current fiscal, a ministry official said.

Without government subsidy, HPCL and BPCL are sure to report net loss in the October-December quarter and IOC too may end the three months in red.

"With food inflation at uncomfortable levels of 15.6 per cent, it is difficult to raise prices just now as any increase in diesel or even LPG rates would have a cascading impact on prices of essential commodities," he said. "We are looking at Finance Ministry for help in these difficult times."

The government had in 2008-09 given Rs 71,292 crore (Rs 712.92 billion) out of the Rs 103,292 crore (Rs 1032.92 billion) total revenue loss on selling fuel below cost in the fiscal.

"This was 69 per cent of the total under-recovery and during current fiscal, which has also seen hardening of crude prices, we are seeking just 55 per cent," he said.

The three fuel retailers are losing Rs 6.99 per litre on diesel, Rs 19.60 per litre on kerosene and Rs 366.28 per 14.2-kg LPG cylinder.

"There was a meeting of the Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee scheduled for last week of December to consider a hike in diesel and LPG rates, but it was postponed," the official said.

"Without the price hike, the gap between domestic retail price and their international benchmark is widening," he added.