Fuel price hike a matter of time

NEW DELHI: Consumers need to brace themselves for a hike in petrol and diesel prices over the next few weeks. The government is exploring a combination of measures including duty rejig, higher subsidies and raising fuel prices.

“A price hike is inevitable,” petroleum secretary MS Srinivasan said without elaborating on products and quantum of the hike. The petroleum ministry also wants cut in customs duty on crude oil and products, besides reducing excise duty on petrol and diesel, a move that may not be easily acceptable to the finance ministry.

Oil company scrips reacted positively to the possibility of a price hike which would bring down their losses. Market leader IOC’s scrip rose 3.2% to Rs 420.05, HPCL advanced 3.5% to Rs 242.65, while BPCL gained 3.6% to Rs 359.20. Global crude prices softened and was ruling at $130 a barrel on Friday.

Hectic parleys were on till late Friday evening to work on a possible solution to the oil crisis. Prime Minister Manmohan Singh met petroleum minister Murli Deora on Friday morning to take stock of the situation. A high-level meeting led by PM’s principal secretary, TKA Nair, finance secretary D Subbarao, petroleum secretary and CEOs of the three oil PSUs, took place on Friday evening to deliberate on the possible options before the government.

According to government sources, the meeting failed to reach a consensus on either the price hike or duty rejig proposal. A hike of Rs 4 per litre in petrol and Rs 2 per litre in diesel is one of the proposals doing the rounds. However, ET could not get an official confirmation on this.

Government officials said that the decision on a price hike will have to be taken at the highest (Cabinet) political level and this may take a while. “This was only the first round of meeting. Oil companies are bleeding and the government will have to act fast,” he said.

Officials of oil companies said that the total oil subsidy bill has to be limited to Rs 70,000 crore at the maximum. Although, it’s a matter of time before the government bites the price-hike bullet, political realities like poll results of Karnataka and the continued rise in inflation rates would play a role in the timing of the decision.

It is estimated that under the prevailing situation under-recoveries of three PSUs may touch Rs 180,000 crore in 2008-09 compared with Rs 77,303 crore in 2007-08.

The government swung into action after oil marketing companies pressed the panic button. “A bailout package is a must in a couple of days. Two of the navratnas — BPCL and HPCL — have informed that they would turn red in the current fiscal if the prevailing condition continues,” an official in the petroleum ministry told ET.

Crude import bills of refining companies have skyrocketed, with Indian crude basket touching $130/barrel. The government is forcing them to suffer losses by holding the price line. It is learnt that companies are losing Rs 600 crore a day on fuel sales.

Oil companies, who are bearing the brunt, however, feel that retail prices should be released by a minimum of Rs 5 a litre to keep losses under check.