Petrol prices may be raised, with no budgetary relief in duties

After the finance minister ruled out lowering duties on crude oil and other fuels yesterday, analysts say this would likely leave oil companies with no option other than to hike prices. They say this could happen shortly as top state owned oil company executives would be meeting oil minister S Jaipal Reddy today to seek his approval for a petrol price hike.

With deregulation and alignment with global crude oil rates, the oil companies have no go but to hike prices as crude oil continues to hover above the $100 levels per barrel. The oil companies, which have held on to the  current prices hoping for an excise duty cut from the 2011 union budget will now face a situation where it would be imperative for them to increase prices to stem mounting revenue losses.

Meanwhile, the common man already reeling under the burden of frequent price hikes will be the worst sufferer as any fuel price increase will only worsen the already difficult inflationary situation. The government meanwhile, continues to levy a tax of almost Rs14.35/litre of petrol, and an expected lowering of the levy which could give measure of relief, does not seem to be happening. According to analysts, at this rate, petrol would soon cost Rs70 per litre.

Oil marketers could raise petrol price by Rs2 to Rs4 as they have been losing Rs2.25 per litre. This could be followed by the government raising diesel price by Rs2 a litre and that of a cylinder of cooking gas by Rs25-Rs50 which would likely send inflation soaring. 

According to analysts, the budget largely glossed over the impact of high oil prices. It also did not meet expectations by not paring taxes on crude and motor fuels that would have rendered raising pump prices unnecessary. Last week, oil minister S Jaipal Reddy said the issue of price increase would be referred to the ministerial panel on fuels.

Meanwhile, crude is ruling at its highest in 30 months at $110/barrel for London Brent and $97 for the benchmark Nymex, and shows no let up in the rising trend. Under the conditions, state-run oil marketers are losing Rs105,000 crore every quarter.

The budget has a provision for only Rs23,640 crore subsidy, which is much on the lower side to Rs38,386 crore for the ongoing fiscal.

The oil marketers that had maintained petrol price for over a month in anticipation of duty tweaks are also losing Rs 10.74 on a litre of diesel, Rs 21.60 on kerosene and Rs356 on a cooking gas cylinder. The companies' losses stood at Rs46,963 crore between April-December last year. The finance ministry doled out Rs21,000 crore cash subsidy and oil producers chipped in with Rs15,654 crore discounts to allow the marketing companies to stay afloat.