The Hindu : National : Bid to avert oil price hike

Online edition of India's National Newspaper
Saturday, Aug 14, 2004

National

National

Bid to avert oil price hike

By Sushma Ramchandran

NEW DELHI, AUG. 13. With inflation inching up even further today, the Central Government is trying to look for ways to avert any further increase in the prices of petrol and diesel tomorrow when the fortnightly review is carried out by oil companies. The Union Finance Ministry is reluctant to cut the customs and excise duties on petroleum products in view of their huge contribution to the overall revenue kitty but it may have to offer some reduction to avoid any further inflationary pressures on the economy.

Informed sources here say the Ministry has suggested a comprehensive review of the taxation structure of the oil products to determine to what extent these levies can be cut back. It is also in favour of the oil companies bearing some part of the burden of the soaring world crude oil prices in view of the huge profits being made through refining margins. The Left parties have been demanding that the cash rich-oil companies shoulder the burden of high world prices rather than pass them on to the consumer.

At the same time, the Petroleum Ministry would not like the profits of the oil marketing companies to decline as has happened in the case of IBP, a subsidiary of Indian Oil Corporation.

Rising subsidy

These companies are carrying the burden of the rising subsidy on the politically sensitive products of LPG cooking gas and kerosene. Though there was an increase in prices of LPG in the middle of June, this has not made much of a dent on the subsidy burden. The Left parties had even then demanded a rollback in the LPG price hike and are not likely to agree to any further increase as this is a product used by the common man.

Oil companies are busy making calculations to factor in the spike in world crude oil prices to $45 a barrel yesterday. The prices moderated slightly today but the overall trends for petrol and diesel are much higher for the past fortnight than for the average of the last quarter. In the case of diesel, the prices are hovering at $47 a barrel as against only $40 during the period from April to July while the petrol prices are as high as $49 a barrel against about $45.35 during April-July.

The oil companies now have to work within the new price band scheme under which they are allowed to revise the prices automatically within the band but have to seek Government approval for going beyond it. According to industry sources, the price band was breached even at the last price revision a fortnight ago in the case of diesel as a result of the continuing rise in world oil prices. Under-recovery in the case of diesel was then Rs. 1.30 a litre. They say that now even petrol prices will go beyond the band but whether they will be allowed to raise the prices is not yet known.

Industry's demand

The industry has urged the Government to allow it to raise the prices beyond the price band for both petrol and diesel, but say they have not yet got any response. In addition, it has proposed that the price band system be reworked so that the effect of the prices in the last fortnight is given a higher weightage.

The band works on the system of the mean of the average of prices over a one year period combined with the mean of the average of prices over the previous three months to arrive at the band for each fortnightly review.

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