Diesel price hike inevitable, but when is the question

A diesel price hike is inevitable in the new fiscal but the timing is the million dollar question.

“We expect it to happen after the States' elections are through. There is no way companies can continue to bear the burden of diesel losses which are over Rs 16 a litre now,” oil industry sources told Business Line .

The Centre would also be monitoring global crude oil prices hoping for a respite before deciding on the quantum of the price hike. For the moment, though, it looks as if the tension in West Asia will ensure that crude oil will not go below the $100 a barrel mark in a hurry.

There is no way diesel will be completely deregulated this fiscal given the magnitude of its losses. The oil sector is hoping that even a marginal Rs 2-3/litre hike will be accompanied by some reduction in duty levies. This is the only way overall fuel losses can be kept in check and the profitability of the public sector refining companies assured.

Sources say cooking gas will also see a hike of Rs 50/cylinder in the coming months though diesel continues to be the biggest area of concern. Through the whole of 2010-11, it took up a huge chunk of the fuel losses thanks largely to its subsidised pricing which makes it an attractive option in non-auto applications.

When petrol was freed last June, it was barely Rs 10/litre dearer than diesel. Since then, successive hikes in petrol prices has only widened this differential which is twice as much today at over Rs 20/litre. As a result, more and more customers are opting for diesel cars and the pace of consumption is only fuelling its losses further.

The automobile sector concedes this is a serious issue but believes the logical solution is to deregulate diesel prices and not impose heavier excise duty on (diesel) cars. In its turn, the Centre cannot dream of a one-time steep hike because that will completely cripple the commercial vehicle industry. “And since this is linked to inflation, this can be ruled out,” sources said.

By the end of the day, there will be a nominal price hike not only to help the refiners but ease the burden on the Finance Ministry from the viewpoint of the compensation package to the refiners. As was the case in 2010-11, the upstream oil companies will also have to do their bit by sharing a third of the losses but, as experts say, the need of the hour is to draft a more cohesive pricing policy for the hydrocarbons sector.

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