A Group of Ministers is likely to consider this week a marginal hike in petrol and diesel prices and a cut in excise duty on auto fuels to cut the Rs 7,840 crore (Rs 78.40 billion) loss public sector oil firms incur every month on selling fuel below cost.
"A hike in fuel prices, duty rationalisation and raising oil quantum of oil bonds are among the options that the GoM will consider when it meets for the first time on December 14," Petroleum Secretary M S Srinivasan said in New Delhi. Besides fuel price hike and excise duty cut, the GoM might also recommend a cut in sales tax by states.
However, there were indications that the GoM on commodity pricing including fuel rates, headed by External Affairs Minister Pranab Mukherjee, may defer its meeting to later this month or even to early January.
Indian Oil, Bharat Petroleum and Hindustan Petroleum are projected to lose Rs 69,753 crore on sale of petrol, diesel, LPG and PDS kerosene as the government has not allowed them to raise prices in line with the price of imported crude.
Petrol is being sold at a loss of Rs 8.74 a litre, diesel at Rs 9.92 per litre, kerosene Rs 20.53 a litre and LPG at a loss of Rs 256.35 per cylinder.
The current price of Indian basket of crude oil is higher by around $22-23 a barrel over the international price prevailing at the time of last increase in petrol and diesel prices on June 6, 2006, Srinivasan said.
"Cabinet had decided to compensate oil companies of 42.7 per cent of their under-realisation on fuel sales through oil bonds. Accordingly, we hope the finance ministry will give about Rs 29,000 crore (Rs 290 billion) worth of oil bonds," he said, adding that one-third of the revenue loss would be met by upstream companies like ONGC.
Petrol is being sold at a loss of Rs 8.74 a litre, diesel at Rs 9.92 per litre, kerosene Rs 20.53 a litre and LPG at a loss of Rs 256.35 per cylinder.
An increase of one rupee a litre in petrol price would cut under-recoveries by Rs 90 crore a litre and the same on diesel would slash the loss by Rs 360 crore (Rs 3.60 billion) a month.
If the government increases kerosene price by the same amount, losses would come down by Rs 95 crore (Rs 950 million) per month and if LPG prices were raised by Rs 10 a cylinder, they would come down by Rs 58 crore (Rs 580 million) per month.
A reduction in excise duty by Re 1 per litre on petrol and diesel would reduce the under-recoveries of oil companies by Rs 1,380 crore (Rs 13.80 billion) and Rs 5,270 crore (Rs 52.70 billion), respectively.