The Hindu Business Line : Oil marketing cos allowed to alter prices in narrow band

THE Government today allowed public sector oil marketing companies limited freedom to alter petrol and diesel prices within a narrow price band. In the process, the consumers can be significantly insulated from global product price shocks.

IOC, BPCL, IBP and HPCL can now raise or lower petrol and diesel prices by up to 10 per cent every fortnight of a pre-defined mean market price, said the Petroleum Minister, Mr Mani Shankar Aiyar, after a meeting of the Cabinet Committee on Economic Affairs (CCEA).

The mean market price is the mean of three months' average landed price of petrol and diesel and the last one year's rolling average price. Ten per cent of this mean price would be the ceiling and floor within which the oil firms can revise rates.

"The proposal for giving freedom to the oil marketing companies to determine petrol and diesel prices within a price band has been approved by the CCEA," said the Finance Minister, Mr P. Chidambaram.

The new pricing policy will come into effect from July 31, when the next fortnightly revision is due.

According to Mr Aiyar, if the required increase or decrease in petrol and diesel prices in a particular fortnight is more or less than the 10 per cent of the price band, the oil companies will be "obliged to inform the Petroleum Ministry".

Upon breach of the price band, the Finance Ministry may consider lowering or increasing duties to calibrate the revision, he said.

At the ruling international product price levels, the current diesel prices are almost at the upper limit of the 10 per cent price band but there could be some hike in petrol prices, oil industry sources said.

With the band mechanism in place, oil companies will not be able to raise prices in line with international prices when they spike.

All the same, when global prices plummet, the oil companies can sell products at above international prices by not passing on the entire benefit to the consumer.

Since April 1, 2002, when the prices of petrol and diesel were decontrolled, the oil marketing companies have adjusted prices of petrol and diesel 24 times. Of this, retail prices have been raised 16 times and decreased eight times.

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