Rupee fall will drain any gains from crude price fall: Reddy

Oil marketing companies will not be in apposition to cut fuel prices even if crude oil prices were to fall below $100 a barrel as the depreciation of the rupee will offset any gain in crude oil prices, oil minister Jaipal Reddy has said.

"Ironically, I can't reduce fuel prices even if crude oil prices go below $100 per barrel because of rupee depreciation from 46 (for one dollar) to 49 a dollar, the minister said, adding, "Due to depreciation, we are losing Rs24,000 crore annually." The minister was addressing the Economic Editors Conference in New Delhi yesterday.

Brent crude prices had risen to $111 per barrel after falling to double-digit levels last month, putting additional burden on the country, which has to import 80 per cent of the crude oil it processes.

Reddy also said that the government would continue subsidising cooking gas for the poor but was considering limiting the number of gas cylinders to focus on subsidising only the poor. "Very decisively I can say that there is no question of eliminating subsidy on LPG (liquefied petroleum gas)," he said.

According to Reddy, oil prices had remained high for a long time, hurting the finances of companies like Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum, and the situation had deteriorated further as the finance ministry failed to release the promised subsidy payment of Rs15,000 crore in the first quarter of 2010-11.

Senior executives of the three state-run oil firms, who were present at the meeting, said their combined borrowings had reached Rs1,27,000 crore as on date with an interest burden of 6,000 crore. They said in another two-and-a-half months they would be forced to cut fuel supplies if government did not compensate them adequately.