Petrol to come down, but diesel, LPG may see big hike

Oil marketing companies may soon cut petrol prices by up to Rs1.5 a litre on the back of falling international prices and a recovery in the value of the rupee. But the government may raise the retail prices of diesel and cooking gas (LPG) in a few weeks, oil secretary Vivek Rae said on Thursday.

He said the government is considering a hike of Rs3 to Rs5 a litre in the price of diesel, which accounts for more than 40 per cent of the fuel used in the country; and a Rs50 hike on a cylinder of LPG, in an attempt to cut import costs by nearly $20 billion to trim a record current account deficit.

A recent sharp recovery in the rupee, which had hit a record low of 68.85 to the dollar on 28 August, and a fall in global crude prices following an easing of tensions over a potential armed strike against Syria have taken off some pressure from the government finances, said.

Petrol prices are revised on 1st and 16th of every month based on average imported cost in the preceding fortnight, while the prices of diesel and LPG are still directly under government control.

With general elections due in around eight months, Rae said the issue of a one-time hike in diesel and cooking fuel rates "is a political and economic challenge".

"Some burden has to be borne by the consuming population. That is the challenge government faces. It is a political challenge, it is an economic challenge. It is a challenge we cannot run away from," he said speaking at a conference organised by Delhi Productivity Council in New Delhi.

Rae said the oil subsidy burden had risen by Rs20,000 crore in the last two months alone on depreciating rupee, and is now at unsustainable levels. The government cannot risk inflating the fiscal deficit further as it would lead to further depreciation in the rupee and a downgrade in credit ratings, he said.

Later talking to reporters, he said a decision on raising rates beyond the periodic 50 paise a litre increases currently in effect would be taken after considering all options.

"The finance minister (P Chidambaram) himself has said that the decision has to be considered very carefully. So I guess all aspects will be taken into consideration before deciding what to do next. There are many options available," he said without elaborating.

Petroleum minister M Veerappa Moily had on 30 August written to Prime Minister Manmohan Singh saying that without a price increase, the government will have to shell out a record Rs97,500 crore to subsidise diesel and cooking gas.

He said the revenue loss on sale of diesel, LPG and kerosene would reach Rs180,000 crore in the current financial year as compared to Rs161,000 crore during 2012-13.

Losses on diesel have widened to Rs10.22 per litre despite prices being raised by 50 paise a litre every month since January.

This coupled with Rs33.54 a litre loss on kerosene and Rs 412 on sale of every 14.2-kg cylinder of cooking gas, the total revenue loss this fiscal comes to Rs180,000 crore, Moily wrote to the prime minister, adding even after upstream firms like ONGC chip in Rs70,500 crore, there would still be a gap of Rs97,500 crore.

A one rupee increase in diesel price will cut loss by Rs4,522 crore in remainder of current fiscal while a Rs3 per litre increase would trim losses by Rs13,565 crore. If rates are raised by a one-time Rs5 per litre, the losses would be cut to Rs29,390 crore.

Similarly, a Rs50 per cylinder increase in LPG rates would trim cooking gas losses by Rs2,604 crore. Besides, a possible Rs2 per litre hike in kerosene price would cut losses by Rs 1,014 crore. The three price increases together would bring down government's subsidy outgo to Rs50,928 crore, he argued.

During 2012-13, oil firms lost Rs161,029 crore on selling diesel and cooking fuel at government controlled rates. To make up for this, the government gave Rs85,000 crore as cash subsidy, while upstream producers like ONGC and OIL gave Rs60,000 crore. The balance was absorbed by the state-owned fuel retailers.