Petrol prices were raised by Rs 2.35 a litre and diesel by 50 paise a litre (excluding State levies) on Saturday evening.

A further raise could be on the way with Petroleum Minister M. Veerappa Moily making a case for an ‘appropriate’ hike in fuel prices.

Though he did not indicate the quantum of hike, the buzz is that the companies are pitching for an increase of almost Rs 3-5 a litre for diesel, PDS kerosene Rs 2/litre and domestic LPG Rs 50/cylinder.

With the eroding rupee hitting the public sector oil marketing companies (OMCs), Moily has written to Prime Minister Manmohan Singh and Finance Minister P. Chidambaram urging them to take steps to check the deteriorating financial health of the OMCs. “…consistent rupee depreciation has a severe impact on the under-recovery (loss incurred) of the OMCs and consequently on their financial health. If the present position persists, the total under-recovery would reach to a level of Rs 1,80,000 crore in the current financial year as compared to Rs 1,61,000 crore during the financial year 2012-13,” Moily wrote. On January 17, the Cabinet Committee on Political Affairs decided to hike diesel prices monthly by 40-50 paise/litre (excluding value-added tax), allow sale of diesel to bulk consumers at market price, and cap subsidised domestic LPG cylinders to nine a year.

In spite of eight increases in diesel price since January 18, totalling Rs 4.25/litre, the current loss to OMCs is Rs 12.12/litre. At present, the companies incur a monthly loss of Rs 6,204 crore on diesel sales. At this rate, it will take some 20 months to eliminate this loss provided there is no further increase in international diesel prices or the rupee-dollar exchange rate, the Minister said. The monthly loss on PDS kerosene is Rs 2,398 crore, and LPG, Rs 3,058 crore.

With the significant depreciation of the rupee against the dollar since April, the loss is likely to be higher, the Minister said, adding that each time the Indian currency depreciates by a rupee against the dollar the under-recovery on sale of the three fuels rises by about Rs 7,900 crore a year.

“If we consider the average price of India crude basket at $110 a barrel and the average exchange rate at $66 for the balance financial year, the under-recovery of OMCs will increase to an unsustainable level of Rs 1,68,000 crore. If the price of international crude oil increases to $115 a barrel, the under-recovery will reach to around 1,81,000 crore,” he said.

The upstream assistance — from ONGC and Oil India — as also from GAIL of Rs 70,500 crore can be expected. The remaining under-recovery of Rs 97,500 crore can be met either through Budgetary support or raising the fuel prices, he added.

(This article was published on August 31, 2013)
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