Decision on oil price hike put off
Published on September 11, 2012 under News
New Delhi(PTI): A meeting of the Cabinet Committee on Political Affairs (CCPA), which could have decided on raising diesel and cooking fuel prices, was today postponed even as Oil Minister S Jaipal Reddy said the price increase was “unavoidable”.
CCPA, which is headed by Prime Minister Manmohan Singh and includes ministers from allies of the UPA alliance, was scheduled to meet this evening but it was postponed without assigning any reason or fixing a new date.
Reddy said although the increase in diesel, cooking gas (LPG) and kerosene prices was not listed on the agenda, CCPA could have discussed the issue based on the revised note on the subject that his ministry had circulated to its members yesterday.
“As I said before, however painful and difficult the increase in price of oil product may be, increase is unavoidable. (To) what extent can consumer take (it) is another matter,” he told reporters after meeting Finance Minister P Chidambaram before the announcement of CCPA meeting being postponed was made.
The double whammy of rising input cost (crude oil prices) and fall in value of rupee, which has made imports costlier, would mean that oil PSUs would end the fiscal with a huge Rs 1.88 lakh crore revenue loss on selling fuel below cost, he said.
“If it (price hike) is not taken up today, decisions may have to postpone by few days.
However I would like to tell the people (that) the increase in price is unavoidable. We will have to perform our unpleasant duty,” Reddy said.
Diesel and cooking fuel rates have not been revised since June last year even as oil firms also sell deregulated petrol at a price which is almost Rs 6 a litre less than its cost.
“I can’t say to what extent price rise will be. If I had the power it would had been done yesterday. I don’t know if it will happen today or tomorrow or a week later,” he said.
Reddy said he had yesterday circulated an updated version of a note detailing the crisis created by the rise in crude oil prices and fall in value of rupee against the US dollar to members of the CCPA.
Besides the Prime Minister and Chidambaram, the CCPA includes Home Minister Sushilkumar Shinde, Defence Minister A K Antony, NCP leader and Agriculture Minister Sharad Pawar, Telecom Minister Kabil Sibal and Railway Minister Mukum Roy.
“We had circulated a note to all members of CCPA about the problem of increasing under-recoveries (revenue loss on fuel sales)… the under-recoveries will exceed Rs 1.88 lakh crore (this fiscal),” he said. “And prices (are) going up further at the global level; rupee is not softening.”
On his meeting with Chidambaram, Reddy said he had “routine interactions” on various proposals but declined to elaborate.
“We discussed the figures relating to under-recoveries,” he added. PSU oil firms are losing a record Rs 560 crore per day on the sale of regulated diesel and cooking fuels, and another Rs 16 crore a day on petrol.
They are losing about Rs 6 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 the 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 can’t take decision (on raising prices) only on the basis of economic facts. We are operating in a political economy. We will have to take a balanced view,” he said.
While diesel prices have not been revised since June last year, petrol rates were last hiked in July. A decision on raising petrol price will be taken after the CCPA meeting on diesel, domestic LPG and kerosene.
The ministry, in the note to CCPA, has been informed it about the three state-owned fuel retailers’ borrowings to make up for the deficit. Their borrowings shot up to Rs 1,57,617 crore at end of June, from Rs 1,28,272 crore as on March 31.
It also seeks to limit supply of subsidised LPG cylinders to 4-6 per household in a year.
The ministry wants to bar households with income of more than Rs 50,000 per month or Rs 6 lakh in a year from getting subsidised LPG cylinders.
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.
Indian Oil Corp (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 block allocation has meant that supplementary demands for grants are not approved and no subsidy payout is possible till the Winter Session of Parliament in November/December.