Government inclined to hike diesel and petrol prices from September 2012

Wednesday 22 August 2012, 11:20 AM by

The Ministry of Petroleum and Natural Gas along with State owned oil companies have announced plans to increase the diesel prices by Rs. 4.50 per litre and petrol by Rs. 3 per litre from September 2012, citing the surge in crude oil prices that soared to a three month high in the third week of August 2012. Recently, a heavy demand for diesel was recorded because of the monsoon season, wherein fuel was required to power the generators. This influenced the government in its decision to curb the consumption of diesel. Ministry officials iterated burgeoning consumption of diesel as a serious concern because it comprises more than 60 per cent of the total fuel subsidy.

According to the Prime Minister's Economic Advisory Council (PMEAC), the proposed hike in prices is imminent, which has always considered raising fuel prices and curbing subsidised cylinder numbers as the means of regulating appropriate distribution of fuel and maintaining equilibrium in fuel prices.

Reportedly, the government is under deadlock with the state-owned oil firms over the proposed price hike as the prices of diesel, Liquefied Petroleum Gas (LPG) and kerosene had not seen any change from around 14 months. Citing the unfavourable INR revaluation and ever increasing crude oil rates, the surge in prices is termed inevitable by the ministry. Indian Oil Corporation, which recently announced its heaviest ever quarterly loss, the most by an Indian company is also looking to influence the government's stance towards the price hike. Reportedly, the consolidated losses of state refiners exceeded a whopping Rs. 40,000 crore in the first quarter of current fiscal.

A ministry official also revealed that the government is slated to hike the present LPG prices by Rs. 50 to Rs. 100 and is planning to leave the kerosene prices untouched. In efforts towards curtailing revenue losses due to LPG in households, the government has a proposed plan to impede the number of cylinders per household. The losses stemming from LPG are approximated to be more than Rs. 1,65,000 crore for the fiscal 2013.

Petroleum Planning and Analysis Cell (PPAC) that functions as oil ministry's analysts and data handlers has forewarned the government of dieselisation of the economy. Diesel being a subsidised fuel meant to serve industrial purposes, trains, power plants and heavy vehicles, among others, has now reached the unanticipated pockets of the economy like passenger cars and private homes. Diesel has now substituted products like furnace fuel, petrol and the unlikely compressed natural gas (CNG).

According to a PPAC report, diesel has now become an substitute for auto gas as some smart consumers owing to rise in CNG prices have found diesel as its alternative and the costly CNG conversion kit being quite influential in this regard. Presently, CNG rate in the national capital is Rs. 38.35 per kg against the diesel rate of Rs. 41.29 per litre. The report also mentioned that the price difference between the two was significantly greater about a year ago when CNG was sold at Rs. 29.30 per kg and diesel was at Rs. 37.75 per litre. Accordingly, diesel sales (up by 7.2 per cent) surpassed the growth in consolidated sales of all oil products.

PPAC report also said, “With monsoon playing hide and seek, threatening largely rain dependent agriculture sector in the country and giving rise to significant power shortages, growth of diesel in June 2012 was expectedly high at 13.7%. There is unlikely to be any respite from such high growth unless selling price of HSD (diesel) is revised upward.”