Petrol price may be cut by Rs 1.50 per litre
New Delhi: Petrol price may be cut by as much as Rs 1-1.50 per litre next week on falling international oil rates and appreciating rupee while a decision on raising diesel and LPG prices is likely in a few weeks.
While petrol price, which are revised on 1st and 16th of every month based on average imported cost in the preceding fortnight, looks set to be lowered on September 15/16, the government is mulling Rs 3-5 per litre hike in diesel and Rs 50 per cylinder hike in LPG rates to narrow record deficit.
Oil Secretary Vivek Rae said the recent sharp recovery in rupee, which hit a record low of Rs 68.85 to a dollar last month, and fall in global crude prices following easing of tensions around Syria, had eased the pressure for an immediate price hike.
He, however, said the issue of a one-time hike in diesel and cooking fuel rates "is a political and economic challenge" from which "we cannot run away."
"Some burden has to be borne by 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 here.
Rae said subsidy burden has reached unsustainable levels which cannot be financed by government budget and oil companies.
Oil subsidy, he said, had risen by Rs 20,000 crore in the last two months alone on depreciating rupee that made imports costlier.
With limited financial resources, the government cannot run the risk of inflating the fiscal deficit further as it would lead to further depreciation in the rupee and downgrade in credit ratings, he said.
Later talking to reporters, he said a decision on raising rates beyond the 50 paise a litre increases being effected currently would be taken after considering all options.
"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.
Officials said the softening in international oil rates and appreciating rupee will translate into a cut in petrol price on September 15/16.
Rae too said that crude prices have come down after tension in Syria receded and the rupee has also stabilised.
Oil Minister M Veerappa Moily had on August 30 written to Prime Minister Manmohan Singh saying that without a price increase, the government will have to shell out a record Rs 97,500 crore to subsidise diesel and cooking fuel.
He said the revenue loss on sale of diesel, LPG and kerosene would reach Rs 180,000 crore in the current financial year as compared to Rs 161,000 crore during 2012-13.
Losses on diesel have widened to Rs 10.22 per litre despite prices being raised by 50 paise a litre every month since January.
This coupled with Rs 33.54 a litre loss on kerosene and Rs 412 on sale of ever 14.2-kg cooking gas (LPG) cylinder, the total revenue loss this fiscal comes to Rs 180,000 crore, Moily wrote to Prime Minister adding even after upstream firms like ONGC chip in Rs 70,500 crore, a gap of Rs 97,500 crore would be left.
A one rupee increase in diesel price will cut loss by Rs 4,522 crore in remainder of current fiscal while a Rs 3 per litre increase would trim losses by Rs 13,565 crore. If rates are raised by a one-time Rs 5 per litre, the losses would be cut to Rs 29,390 crore.
The hikes proposed are one-time and are outside monthly revision in rates of 50 paise happening since January.
Similarly, a Rs 50 per cylinder increase in LPG rates would trim cooking gas losses by Rs 2,604 crore. Besides, a possible Rs 2 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 Rs 50,928 crore, he argued.
Rae said every one rupee depreciation of Indian rupee against US dollar increases the under-recovery (loss) of the public sector OMCs on sale of diesel, PDS kerosene and domestic LPG by about Rs 8,000 crore per annum. Similarly, a one dollar per barrel increase in oil rates would result in Rs 4,500 crore increase in under-recoveries.
During 2012-13, oil firms lost Rs 161,029 crore on selling diesel and cooking fuel at government controlled rates. To make up for this, the government gave Rs 85,000 crore cash subsidy while upstream firms like ONGC gave Rs 60,000 crore. The balance was absorbed by fuel retailers.