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The recent petrol price hike has, predictably, sparked furious political reactions. Since the time its pricing was deregulated in June 2010, petrol has become dearer by nearly 50 per cent but its consumption continues to grow at over five per cent.
“Do we have a choice?” is the general reaction among consumers. While there is an element of truth here, people also realise that global crude oil prices are on the upswing and the days of cheap fuel are long gone. That explains why most of them are opting for diesel cars since the fuel is a third cheaper than petrol.
Diesel pricing
Since the Centre knows that a diesel price hike will stoke inflation even further, it is now toying with the idea of a levy on (diesel) cars to discourage people from buying them. This could be wishful thinking because the mass market thinks quite differently as evident in the reaction to the petrol price hike.
If cheaper petrol is what everyone wants, the best way forward is to revisit the tax component within its price. This comprises nearly 45 per cent levies slapped by the Centre and State(s). If these were scrapped completely, a huge revenue stream would dry up for them.
Paying the price
On the other hand, any rollback on the petrol price hike will only hit the oil companies' bottomlines even further. They are already burdened by the subsidies on diesel, cooking gas and kerosene as evident in the first half results of Hindustan Petroleum Corporation and Bharat Petroleum Corporation.
The duo suffered combined net losses of over Rs 12,000 crore between April and September and indications are that IndianOil, whose results are due on November 9, will be in the red by around Rs 10,000 crore. The outlook on global crude and product prices is as grim for the rest of this fiscal and if the rupee continues to play truant, the three oil majors are in for big trouble.
It is this uncertainty that could derail ONGC's Rs 12,000-crore FPO (follow-on public offer) scheduled this year. The company bears the lion's share (with GAIL (India) and Oil India chipping in with the balance) of the one-third subsidy support to the refiners. The problem is that it sometimes ends up coughing more, as in the last quarter of 2010-11, when the outgo was nearly 39 per cent.
Over the years, many expert panels were set up to study the fuel pricing structure and recommend changes. Right from the first committee in 1995 (under the stewardship of Mr U. Sundararajan, former CMD of BPCL) to the latest chaired by Dr Kirit Parikh, the unanimous verdict has been to free prices while ensuring that low-income groups are not affected. Till this is done, every constituent of India's oil sector will pay the price for a skewed policy.
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