The government-controlled oil marketing companies (OMCs) decided to review retail prices of petrol on a monthly basis. However, the date for the next price review and the mechanism to fix the price are yet to be finalised.
The three OMCs also agreed to maintain a uniform price of the fuel for the next three months and let market forces determine the prices after that. This means that by mid-October, consumers in India will have the option to choose a retail outlet which offers them the best deal.
The decision was taken in a meeting of senior executives of Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation with Union Petroleum Secretary S Sundareshan on Wednesday.
"The oil marketing companies have decided that prices of petrol will be reviewed on a monthly basis unless there is a sharp fluctuation in crude oil and international petrol prices," S V Narasimhan, director (Finance), Indian Oil told reporters after the meeting. "Since prices were increased from June 25, we will take a call (on the next review) towards end of month."
Narasimhan said the OMCs will maintain a uniform price for three months and the prices after that will be based on competition.
"I am given to understand that everybody (the oil companies) will follow a wait and watch policy for few months until the situation stabilizes," Sundareshan said. He added that for there is no proposal to further increase diesel prices.
The government had decontrolled petrol prices on June 25. The move had led to an increase of Rs 3.50 on a litre of petrol. Diesel prices were also raised by Rs 2 per litre, which left OMCs with under-recoveries of Rs 1.60-1.70 per litre. "In diesel, we continue to be guided by the government," Narasimhan said.
The government had also announced an increase of Rs 3 on a litre of kerosene and Rs 35 on each LPG cylinder.
The government was under immense pressure to roll back the fuel price hike especially since headline inflation has been in double digits since February 2010. Inflation as measured by the Wholesale Price Index (WPI) continued to be in double digits at 10.55 per cent for June 2010. High prices of fuel and allied products pushed the index up during the month as the government had raised prices of petrol, diesel and other products on June 25. Wholesale inflation had stood at 10.16 per cent in May 2010.
The upstream oil companies--Oil and Natural Gas Corporation and Oil India Ltd--will contribute Rs 6,000 crore towards partly compensating the under recoveries of OMCs for the quarter ended June 30. This would leave Rs 14,000 crore of uncompensated under-recoveries.
While accepting that no mechanism has been put in place for sharing the under-recoveries on diesel, kerosene and LPG for the current year, Sundareshan said it will be worked out by petroleum ministry in consultation with the finance ministry.
Even after last month's price increase, the OMCs lose Rs 15 on a litre of kerosene and Rs 226 on each LPG cylinder. The total under-recovery of OMCs after the price increase is estimated at Rs 53,000 crore for the current fiscal.
