How India plans to tackle oil price rise

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How India plans to tackle oil price rise

Petroleum Minister Murli Deora met Finance Minister P Chidambaram on Friday to discuss the measures to be taken in the domestic oil market in the wake of surging crude oil prices in the international market.

However, Deora declined to divulge what transpired at the meeting saying: “A decision may be found soon.”

It is understood that the government has three options for controlling the crude oil price rise. One is to cut the customs and excise duties; second is to issue additional bond against the higher under recoveries and the third is a mix of both and a slight increase in oil prices.

Officials said that when Cabinet met for discussing the crude oil price surge, the price of Indian basket was nearly $70 per barrel. On Friday, it is between $86 to $ 87 per barrel.

The actual price of petrol is Rs 21 per litter but the duties on petrol are more than 100 percent and thus it is distributed at Rs 44 to 45 per litter. Similarly, the taxes on diesel come to 60 percent to 70 percent.

The government had earlier announced a package to oil Public Sector Undertakings to take care of two third of Rs 55000 crore revenue loss. Now in the wake of crude oil price rise globally, the measures are considered inadequate.

 

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Petrol, diesel prices may be hiked

The government is exploring various options, including a marginal hike in prices of petrol and diesel, and a possible duty cut to ease burden on state-run oil firms that are increasingly losing revenue due to global crude prices surging close to $100 a barrel.

"We will do all that is possible to protect the interests of our PSUs," Petroleum Minister Murli Deora said after a brief meeting with Prime Minister Manmohan Singh on the issue on Friday.

Deora said the issue could not be discussed at length due to paucity of time and a separate meeting may have to be convened next week to discuss the matter.

"A decision may take two-three days," he said, but did not rule out the possibility of a price hike. "I cannot say that (prices will not be increased)."

Deora is also believed to have briefed UPA chairperson Sonia Gandhi on the scenario emerging from international crude oil prices touching $96 a barrel.

When the Cabinet had on October 11 decided on sharing the burden of Rs 54,935 crore (Rs 549.35 billion) arising from not raising petrol, diesel, LPG and kerosene prices between the government and PSUs, the Indian basket of crude was averaging $68-69 a barrel.

However, the Indian basket is now trading at over $85 per barrel, widening the revenue loss of Indian Oil, Bharat Petroleum and Hindustan Petroleum by nearly Rs 7,000 crore (Rs 70 billion).

The state-run firms are currently incurring Rs 240 crore (Rs 2.4 billion) loss per day on sale of petrol, diesel, LPG (cooking gas) and PDS kerosene.

Deora said the situation on the ground had undergone drastic change from October 11 when the government had decided not to raise fuel prices during the remaining period of this year.

"Crude oil prices have gone up so much... they have put enormous burden on our PSUs. It is our duty to protect their interest and we will do all possible," he said.

The options before the government include raising the quantum of oil bonds to be issued to oil companies, lowering excise duty on petrol and diesel and cutting customs duty on crude oil, said Deora, who had yesterday discussed measures to cope with the record oil prices with Finance Minister P Chidambaram.

Officials said petroleum ministry is pressing for an excise duty cut of Rs 2 per litre on petrol and Re 1 a litre on diesel to offset the rise in revenue loss of Rs 61,840 crore (Rs 618.40 billion) on sale of petrol, diesel, domestic LPG and kerosene.

The government had last month decided to compensate 42.7 per cent of the then projected revenue loss of Rs 54,935 crore (Rs 549.35 billion) on fuel sale through issue of oil bonds.

Besides giving oil bonds worth Rs 23,457.24 crore (Rs 234.57 billion), 35 per cent or Rs 19,227.25 crore (Rs 192.27 billion) of the total under-realisation in revenue was to be borne by ONGC, GAIL and OIL. The remaining under-recovery was to be borne by IOC, BPCL and HPCL.

But with global crude prices crossing $96 a barrel, the compensation is now being considered inadequate. "Oil prices have gone up so much... we need to urgently find a solution," Deora said.

 

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Murli Deora's action plan as oil nudges $100

With the rise of global crude oil prices - currently nudging $100 per barrel - the "losses" of the three government-owned oil marketing companies have gone up to a whopping Rs 240 crore (Rs 2.4 billion) per day.

The appreciating rupee and strong refining margins have only been able to partially offset the surging oil prices, leaving the government "very very worried," Petroleum Minister Murli Deora tells Rakteem Katakey. The plan is to protect the "aam aadmi" as well as the oil companies, through an additional relief package.

Global oil prices are close to $100 per barrel. How worried are you?

We are very very worried. Yesterday I met not just (Finance Minister) Mr Chidambaram, but also Prime Minister Manmohan Singh and Sonia Gandhi regarding a relief package for the oil marketing companies.

They are all very worried. We are trying to find a solution, and a quick one, as soon as possible. The entire government is worried.

Does that mean that the government-owned oil marketing companies are likely to get another relief package soon, in addition to the oil bonds announced last month?

Like I said, we are all working towards a solution. We have four options before us: give out more bonds, raise prices of automobile fuels, reduce excise duty on petroleum products and cut import duties on crude oil. We are actively considering all the options. It could be a combination of measures.

Is a fuel price hike round the corner?

That I cannot say. We are considering all the four options.

What came out of your meetings with the prime minister, the finance minister and Mrs Gandhi?

They understand the problems and are looking into them. We will come up with something soon.

Will the aam aadmi continue to be protected against high crude oil prices?

We have always been saying that. We have always protected the aam aadmi from high crude oil prices. When countries all over the world are increasing retail selling prices of fuels we have been able to keep them constant. We are trying our best to protect the common man.