Petrol price hike around the corner

Fueling stations may be rendered dry due to skyrocketing petrol prices in the state. Following hike in petrol prices in the international markets, a rise in fuel price by government oil marketing companies (OMC) is just around the corner.

It does not come as a surprise as the last two years have witnessed controlled fuel prices hike in the month of June. Moreover, the state elections are coming up and the government is filling up the chest. Besides the hike in prices of controlled fuels like diesel, kerosene and LPG that come about in June, petrol prices may also see a slight climb.

After the Administered price mechanism (APM) was put to part in 2002, the fuel prices have been fluctuating abruptly. In fact, the same year that APM was pulled back, petrol and diesel prices saw a change not fewer than 12 times. Although there is no official word from the government officials, the industry experts are certain of a price hike sometimes in June, following the conclusion of Budget conference of Parliament scheduled for May 22.

Petrol price hike around the corner

Countering fuel price hikes in international markets, the government will have to strategically price the fuel in the country, to control the fuel import bills. This simply means that the common will have to fiddle with the fatter import bills by shedding more per litre of fuel.

Finance Minister Pranab Mukherjee said in the Parliament this Tuesday that it was unfeasible for the government to keep up with the present position of fuel subsidies. He hinted that there was an urgent need of certain measures to back the losses faced by government oil companies like IndianOil, Bharat Petroleum and Hindustan Petroleum. Predicting from the current scenario, these companies are prone to suffer a debt of Rs 1.8 lakh crore for the financial year.

While the government proposed to supply Rs 40,000 crore as per Union Budget declaration towards fuel subsidy, the upstream oil companies will account for another Rs 68,220 crore at their subsidy share of 37.9 percent. Summing the two amount still leaves the debt short of Rs 71,780 crore.

June of 2010 saw the government control keep in command petrol and increased prices of diesel, kerosene and cooking gas. Whereas in 2011, the government let the price of regulated products like diesel, kerosene and cooking gas to inflate. The five percent custom duty that was levied on crude oil was also relaxed, bringing down import duty on petrol and diesel, thereby adding revenues of Rs 49,000 crore. As the prices on these products continued to shoot up globally, the debt on the companies in India kept swelling. While the debt on diesel was hardly Rs 5 per litre in July last year, the figure has risen to a staggering Rs 14 per litre.

Petrol price hike around the corner

“The period of June is a respite time in terms of political buzz. As there is no Parliament session, reactions will be muted if a price hike is done during June. But, this is not a healthy situation for oil companies,” said R S Sharma, former ONGC chairman and current chairman of the Ficci Hydrocarbon Committee.

In contrary, the industry experts believe that a marginal price hike is practical rather than a year on year increase of prices. “Ideally, price hikes should be done in a phased manner so that the consumers are not burdened in one go. I see the June increase as a coincidence but if it happens this time too then it would become a trend,” said G C Daga, former director (marketing) at IndianOil.

At present, the three Oil Marketing Companies sum up to a loss of Rs 570 per day, on the sale of controlled products like diesel, kerosene and domestic cooking gas, according to P K Goyal, director (finance) at IndianOil.

In terms of figure, the loss on diesel is Rs 13.91 per litre; on kerosene Rs 31.49 per litre; on domestic cooking gas cylinder Rs 480. On the other hand, petrol price is unregulated since June 2010, adding to a revenue loss of Rs 7.17 per litre. The Indian import of crude oil has averaged $117.64 per barrel in the current fiscal, stepping up five percent from the last fiscal of $111.89. Since the cost of rupee is falling in the international market, the overall impact on this figure is much larger.

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