'Crude price fall not to cut fuel price'

A drop in global crude prices does not offer the government any immediate scope for reduction in domestic fuel prices, although India's crude basket price has fallen over eight per cent in two months.

"It (fall in crude prices) is a happy sign. It is a welcome development. But there is no scope for reduction in domestic retail prices," Petroleum Minister Murli Deora told reporters.

Crude oil prices have fallen to below $113 a barrel this week from all-time high of $147 per barrel witnessed last month.

The basket of crude oil India buys averaged $109.88 per barrel, down from $119 a barrel price on June 4 when petrol, diesel and domestic cooking gas prices were raised.

However, retailers Indian Oil, Bharat Petroleum and Hindustan Petroleum continue to lose money on fuel sales, Deora said. "There still are huge under-recoveries (on fuel sales). I don't see how we can reduce retail prices when our companies continue to lose money."

Fuel prices in India are pegged at $68 per barrel, much lower than the current prices in international market.

"Our retail prices are pegged much lower (current international crude prices). There is no scope for reduction in petrol and diesel prices as of now," he said.

The government had in June raised petrol price by Rs 5 per litre, diesel by Rs 3 a litre and domestic LPG by Rs 50 per cylinder.

The fall in international prices would help cut down on the projected revenue loss. At the time of June 5 increase in fuel prices, the revenue loss on sale of petrol, diesel, LPG and kerosene was put at Rs 2,46,600 crore (Rs 2,466 billion) for the full year.

The government is finding it difficult to implement the report in toto as inflation is already at a 13-year high at 12.01 per cent.

Export parity rates or the price that refiners would fetch if the fuel were to be exported, would be 10-15 per cent lower than the trade parity pricing followed now, thereby bringing down the projected revenue losses.

Domestic retail price is currently determined in an 80:20 mix of import-parity and export-parity prices.

The committee, besides suggesting freeing auto fuel pricing from government control, also recommended changes in distribution of domestic LPG by restricting only six refills per connection a year.

It also proposed a slash on import duty on petrol and diesel to zero (from 2.5 per cent) as has been done in the case of crude oil, domestic kerosene and LPG. Besides, excise duty on petrol is suggested to be reduced from Rs 13.75 per litre to Rs 10.

The panel also favoured imposing a new tax on oil produced from fields awarded prior to the advent of New Exploration Licensing Policy in 1999 -- state-run firms like ONGC would be stripped of any gains above $75 a barrel while private companies like Cairn would be taxed at 40 per cent for gains over this benchmark rate.