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Reliance, Essar, Shell for freeing petrol, diesel prices

Last Updated: Friday, November 27, 2009 - 18:27

New Delhi: With global oil rates stabilising at around USD 70-80, Reliance Industries, Essar Oil and Royal Dutch/Shell on Friday joined the chorus for freeing petrol and diesel prices to give private sector a level playing field as also lower government`s subsidy burden.

Freeing prices would mean a Rs 3.85 a litre increase in petrol and Rs 3.71 per litre hike in diesel rates but the move would help state firms who are reeling under severe financial constraint in absence of promised subsidy from the government.

In separate presentations to the Kirit Parekh Committee on Fuel Pricing Reforms, the three firms said oil sector was the only sector where subsidy was limited to public sector firms, driving private competitors out of business.

"If prices are not freed, private sector should also be treated at par with PSUs (and given subsidy)," RIL said.

State-run Indian Oil (IOC) favoured freeing auto fuel pricing but wanted the government to first commit upfront to meet in cash the revenue lost on selling LPG and kerosene.

Oil and Natural Gas Corp (ONGC) said it was willing to share fuel subsidies but the mechanism should be transparent wherein incremental revenues it earned beyond a pre-decided threshold can be automatically parted for the same.

Currently, upstream firms like ONGC are asked to pick up the revenue retailers IOC, BPCL and HPCL lose on selling petrol and diesel. The revenue they lose on LPG and kerosene are met through issue of oil bonds but none have been issued this fiscal.

Reliance said upstream firms like ONGC who make a net
gain of Rs 8,350 crore on every USD 10 per barrel increase in
crude prices, should be asked to divert the incremental
revenues towards subsidising domestic LPG and kerosene.

"Freeing up of prices with mechanism to deal with (sharp
hike or drop in) prices is infact the correct solution and
will usher in efficiency of operations due to competition
benefiting the consumer," Reliance said.

It said consumer interests can be best protected against
price fluctuation by implementing annual moving average of
pricing. A review mechanism can be developed if the cumulative
revenue loss or gain reaches a trigger of say Rs 2 a litre.

"This will encourage competition and result in both price
and service benefits to consumers," it said.

Essar said time was appropriate for complete deregulation
of auto fuel prices as crude oil prices had stabilized in the
USD 70-80 a barrel range and rupee appreciation against USD.

It suggested Philippines Model where free pricing of
petrol and diesel is allowed within an agreed band. Flexible
duty structure come in force in case of breach of band - rates
coming down if prices spike and vice-versa.

The other option could be Grid Based Price changes where
oil firms are allowed to freely price fuel if crude stays
between USD 50-70 a barrel range. In case it climbs to USD
70-80 range, partial increase of Rs 2 a litre allowed and
remaining revenue loss for all private and public met by the


First Published: Friday, November 27, 2009 - 18:27

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