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Freeing fuel prices: Petrol may cost Rs 6 a litre more

Last updated on: May 20, 2010 19:11 IST

Freeing fuel prices: Petrol may cost Rs 6 a litre more

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After natural gas prices, the government looks set to bite the bullet on auto fuel prices, with a panel of ministers scheduled to meet on June 7 to decide on freeing petrol and diesel prices.

An Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee is scheduled to meet on June 7, a top petroleum ministry official said.

Besides freeing petrol and diesel prices from government control, dealing with the revenue lost on selling domestic LPG and PDS kerosene below cost is also on agenda of the ministerial panel.

The government had on Wednesday decided to more than double the price of natural gas used as feedstock by power plants, fertilizer units and firms selling CNG to $4.20 per mmBtu, at par with the rate at which Reliance sells its gas.

The decision to hike rates from Rs 3.2 per cubic metre to Rs 7.5 per cubic metre, necessitated to rationalise gas prices and to check the losses of state oil companies, was considered bold, considering the fact that electricity tariff and CNG prices were bound to go up.

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Besides Mukherjee, the EGoM on fuel prices also includes Petroleum Minister Murli Deora, Agriculture Minister Sharad Pawar, Chemical and Fertiliser Minister M K Alagiri, Railway Minister Mamata Banerjee, Road Transport Minister Kamal Nath and Planning Commission Deputy Chairman Montek Singh Ahluwalia.

For petrol and diesel prices to be freed from government control, rates would have to be raised by over Rs 6 a litre.

Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum lose Rs 255 crore (Rs 2.55 billion) a day by selling fuel below cost.

They may end the fiscal with a Rs 90,000-crore (Rs 900 billion) revenue loss.

They currently sell petrol at a loss of Rs 6.07 a litre, while the loss is Rs 6.38 per litre of diesel, Rs 19.74 per litre of PDS kerosene and Rs 254.37 per 14.2-kg LPG cylinder.

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Image: Fuel prices are likely to rise if the government gives up its control on fuel pricing on June 7.
Photographs: Reuters
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Industry sources said the EGoM may decide to free just the petrol price for now and approve a marginal increase in diesel and LPG rates.

The official said the three firms had lost Rs 46,051 crore (Rs 460.51 billion) on selling petrol, diesel, domestic LPG and PDS kerosene below the imported cost in 2009-10. Of this, Rs 14,430 crore (Rs 144.30 billion) was the loss on petrol and diesel, which is entirely being met by upstream firms like ONGC and OIL.

To partly cover the Rs 31,621-crore (Rs 316.21 billion) loss on LPG and kerosene, the finance ministry has agreed to give Rs 26,000 crore (Rs 260 billion). The remaining Rs 5,621 crore (Rs 56.21 billion) would have to be absorbed by the retailing firms, he said.

According to the terms of reference (ToR), the EGoM is to consider a pricing policy for petrol and diesel, including decontrol, he said, adding that it also has to decide on ways to bridge the deficit between the imported cost and retail price of LPG and kerosene through a marginal price hike.


Image: Cooking gas prices too would go up.
Photographs: Reuters
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