Petrol price to go up by Rs 3 per litre

The government on Tuesday decided to raise petrol price by Rs 3 a litre and diesel by Rs 2 per litre in line with rising crude prices, but spared consumers of domestic cooking gas and kerosene from any price hike.

"The hike will be effective midnight tonight," Petroleum Minister Mani Shankar Aiyar told reporters after a meeting of the Cabinet, chaired by Prime Minister Manmohan Singh.

Aiyar also said that there would be no cut in excise duties on petrol and diesel, as indirect tax revenues were lower than the target. 

Public sector oil firms, which lost Rs 14,500 crore (Rs 145 billion) this fiscal on selling fuel below the cost, would be compensated for uncovered portion of petrol, diesel, LPG and kerosene cost through issue of oil bonds. 

"The government has decided that bonds will be issued to oil companies (IOC, BPCL, HPCL and IBP). The value of bonds, the structure and duration (tenure) will be decided by finance ministry in consultation with petroleum ministry," Aiyar said.

Petrol is currently being under-priced by Rs 7.45 a litre to the cost and diesel by Rs 5.15 per litre. LPG was being sold at a loss of Rs 96 per cylinder and kerosene price was discounted by Rs 12.85 a litre to the cost.

But for the hike, public sector oil retailing firms would have become bankrupt, beginning with IBP Co Ltd, which would have become a BIFR case by month end.

Aiyar said the decision to hike fuel prices was taken with a view to protect financial viability of oil companies and ensure that they were able to meet their capital expenditure targets.

Upstream oil firms like Oil and Natural Gas Corp would continue to take on themselves, a part of the losses, while oil retailing firms would continue to suffer despite the price hike.

"In taking this decision, the government has ensured that the burden (of increase in cost of raw material -- crude oil) was equally borne by the government, oil companies and consumers.

"One-third of the burden is being borne by the government (by way of issue of oil bonds), while oil companies will bear more than half of it. The hike in price for consumers works out to be only 13 per cent of the total burden arising from spurt in international oil prices," Aiyar said.

If the hike had not been effected, the oil companies would have suffered a revenue loss of Rs 40,000 crore (Rs 400 billion) this fiscal. All the retailers -- Indian Oil Corp, Bharat Petroleum Corp, IBP and Hindustan Petroleum Corp -- reported net losses in the April-June quarter and were expected to do the same in the second quarter too.

Aiyar acknowledged the fact that oil companies were on the verge of reporting losses in July-September quarter and their effective rate of interest on borrowings had also gone up due to impact on profitability.

The finance ministry opposed any duty cut on oil products citing Rs 3,628 crore (Rs 36.28 billion) lesser revenue realisation from customs and excise duties than the projected Rs 64,738 crore (Rs 647.38 billion) for 2005-06.

Excise duty collection projected for 2005-06 at Rs 47,963 crore (Rs 479.63 billion)was lower than Rs 57,331 crore (Rs 573.31 billion) budgetary target though it was higher than Rs 42,824 crore (Rs 428.24 billion) mobilised in 2004-05.

On customs duty front, the projection of Rs 13,240 crore (Rs 132.40 billion) this fiscal is almost the same as that of 2004-05. This projection was Rs 5,833 crore (Rs 58.33 billion) higher than the budgetary target of Rs 7,407 crore (Rs 74.07 billion).

Aiyar said the finance ministry had estimated that revenues had not increased on projected lines and in some cases decreased. "Therefore, there will be no change in duties as of now."

Sources said the petroleum ministry had proposed a hike of Rs 20 per LPG cylinder, besides an increase of Rs 5 per cylinder of LPG and Rs 0.50 per litre on petrol and diesel every month to bring domestic prices in line with the international trends.

The finance ministry opposed a demand for cutting excise duty on petrol and diesel by Re one per litre and was also not in favour of issue of oil bonds.

IOC, BPCL, HPCL and IBP together lost about Rs 14,700 crore in revenues on fuel sale this fiscal and total revenue loss may touch a whopping Rs 40,000 crore by the end of 2005-06 financial year if prices were not raised.

Without the hike, IBP's accumulated net worth would be completely eroded by month end and it would become sick. Other oil retailers BPCL, HPCL and IOC would too become sick in 13 months, 20 months and 35 months respectively if fuel prices were not raised.