The Hindu : Business : Petrol, diesel prices review on cards

Online edition of India's National Newspaper
Thursday, Mar 10, 2005

Business

Business

Petrol, diesel prices review on cards

By Sushma Ramchandran

NEW DELHI, MARCH 9. Even as the world oil prices touched a high of $55 a barrel today, there are reasons to believe that the Government may soon review the domestic prices of products such as petrol and diesel that have been frozen since November last.

Latest official estimates show that the oil import bill has shot up while under-recoveries of public sector oil companies are rising rapidly. During April to December 2004, the oil import bill crossed Rs. 85,500 crore as against Rs. 60,450 crores in the corresponding period last year. Similarly, under-recoveries due to oil companies not passing on the full rise in world prices to consumers have ballooned to Rs. 18,000 crores in the case of kerosene and LPG.

The Petroleum Ministry is believed to be watching the volatility in global crude oil prices with concern especially since it had been looking forward to some moderation and stability on the price front with the decline in winter demand. In contrast to these expectations, prices have not only continued to fluctuate but have been hitting record highs. Besides, the likelihood of world crude oil prices remaining at higher levels in the medium term has been highlighted by statements of OPEC member countries including the recent comment by the visiting Venezuelan President, Hugo Chavez, that oil prices will now range between $40 and $50 a barrel.

In this backdrop, the oil companies have made out a strong case for revising petrol and diesel prices as they have been forced to absorb the higher international prices since November last. They have already been taking on the subsidy burden for kerosene meant for the public distribution system and LPG for domestic consumption. Under-recoveries on account of these two products alone are estimated at Rs. 18,000 crores during the current fiscal. In addition, the oil companies have had to absorb the impact of the modified customs and excise duties in the latest budget.

Under-recoveries

Though the oil marketing companies such as the Indian Oil Corporation, the Bharat Petroleum Corporation Limited and the Hindustan Petroleum Corporation Limited have so far had healthy bottomlines, the Government is worried that their profitability will decline considerably in the current fiscal as a result of the rising level of under-recoveries. A review of the entire issue is likely to be carried out by the end of this month. In case global oil prices show no signs of moderation, there can be little option then but to revise prices of products.

Over the past year, the effort to contain the impact of the unprecedented rise in international prices has largely been through fiscal measures by reducing customs and excise duties. Initially in June last, excise duties on petrol, diesel and domestic LPG were reduced by 4 per cent, 3 per cent and 8 per cent respectively. Later in August, excise duties on petrol, diesel and kerosene for the public distribution system were reduced by 3 per cent, 3 per cent and 4 per cent respectively. Besides customs duties on petrol, diesel, kerosene and domestic LPG were cut by 5 per cent each. Finally, in the 2005-06 budget, customs duty on crude oil has been cut from 10 to 5 per cent, and domestic LPG and PDS kerosene from 5 per cent to nil. Customs duty on other petroleum products has been brought down from 15 to 20 per cent to 10 per cent.

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