BAD NEWS! Diesel, LPG prices set to rise again

The petroleum ministry is pushing for another hike in diesel and domestic LPG prices and an empowered group of ministers will take a decision later this month.

It would be the second increase in prices of the two controlled products this financial year.

The EGoM may find this an opportune time to raise prices as inflation is expected to start softening from next month and there is still time for the Assembly elections in various states, including the politically significant Uttar Pradesh.

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The ministry wants to bring down the losses of oil marketers Indian Oil, Bharat Petroleum and Hindustan Petroleum.

The three companies are losing Rs 319 crore (Rs 3.19 billion) daily on subsidised sale of diesel, kerosene and domestic LPG.

"I have asked for a meeting of the EGoM," petroleum minister Jaipal Reddy told reporters after a meeting with finance minister Pranab Mukherjee, who heads the EGoM. State-owned oil firms are currently losing Rs 8.58 a litre on diesel and Rs 260.50 every LPG cylinder.

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"The meeting would take place before the Winter session of Parliament (beginning November 22)," he said, adding a decision on raising prices may "not be easy".

The companies also lose Rs 25.66 a litre on kerosene.

At the current rate, the industry is projected to lose Rs 130,000 crore (Rs 1,300 billion) in revenue on sale of diesel, domestic LPG and kerosene for the year.

The companies sell diesel, kerosene and LPG at government-regulated prices, lower than the market-linked price.

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The consequent loss is compensated through a mix of discounts on crude oil from ONGC and OIL and cash compensation from the government.

However, since government compensation comes with a lag, the oil marketing companies have been forced to borrow heavily for their working capital requirements.

The combined borrowings of the three companies have already crossed Rs 120,000 crore (Rs 1,200 billion).

"Oil companies will soon find it difficult to get loans from Indian banks, let alone foreign banks," Reddy said, adding the companies were borrowing heavily to meet even working capital requirements in the absence of the fuel selling price meeting even their operating expenses.

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Bharat Petroleum and Hindustan Petroleum have declared net losses of Rs 5,791 crore (Rs 57.91 billion) and Rs 6,444 crore (Rs 64.44 billion), respectively in the first six months of the current fiscal. Indian Oil had declared a loss of Rs 3,719 crore (Rs 37.19 billion) in the first quarter and is expected to report a loss when it declares its second-quarter numbers next week.

Overall inflation has remained stubbornly high, near double digits, since January 2010.

The headline inflation based on the wholesale price index was recorded at 9.72 per cent in September.

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Earlier this week, the finance minister said, "Steps have already been taken. I hope it will have impact and from November-December onwards, the rate of inflation will be moderating."

However, an increase in prices of diesel and LPG would stoke inflation further.

Of the three regulated petroleum products, diesel has the highest weight, of 4.6702 per cent, followed by LPG (0.91468 per cent) and kerosene (0.73619 per cent) in WPI.

Even as the price of the Indian basket of crude has remained around $109 a barrel, similar to that in June (when the last hike was announced), the rupee has weakened by nearly 10 per cent against the dollar.

That has made imports of crude oil costlier.