The delayed privatisation of Hindustan Petroleum Corporation Ltd faces another hurdle with the petroleum ministry raising the issue of the government losing control over prices of the politically sensitive liquefied petroleum gas and kerosene in an election year.
The Cabinet committee on divestment has cleared a proposal to offload 34.01 per cent government stake in HPCL to a strategic partner along with management control. The divestment ministry is planning to complete the sale by November.
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The petroleum ministry has told senior leaders of the ruling National Democratic Alliance that if the oil company is privatised, it will not be possible for the government to prevail on the pricing of the two subsidised cooking fuels.
The most the petroleum ministry can do is to enforce policy, which gives oil companies the freedom to charge import parity prices for LPG and kerosene.
At present, all the oil companies selling the two subsidised fuels are in the public sector and the government has not allowed them to raise their retail prices despite a massive increase in international prices. The under-recovery of the oil companies in 2002-03 on this was Rs 5,430 crore (Rs 54.30 billion).
Since the government has cut by a third the subsidy on the two products this fiscal, the under-recovery is expected to be in the range of around Rs 8,000 crore (Rs 80 billion). HPCL alone will take a hit of Rs 2,500 crore (Rs 25 billion).
The subsidy is to be cut by another third in 2004-05, and the impact on HPCL will be higher if forced to hold on to current prices of LPG and kerosene.
The petroleum ministry is of the view that once the control of HPCL passes to private hands, the new management will not take this hit and will raise prices. And it will not be long before the public sector oil firms follow suit.
Petroleum ministry sources point out that this might spill over to other products like petrol and diesel, which are underpriced at times.