Crude facts: Your fuel bills may go up again

NEW DELHI: It’s time to brace for a price hike in petrol and diesel. With state elections still far away and inflation under control, the general view in the government is that this is an opportune time for increasing fuel prices with minimal political opposition.

The feeling is that the oil marketing companies (OMCs) need to be helped as they are losing Rs 5.88 on the sale of every litre of petrol and Rs 4.80 per litre on diesel. There seems to be no respite in the near future with the average price of Brent crude crossing $77 a barrel.

The government is under pressure to hike fuel prices as continued artificial suppression of price cannot be sustained for long and would have an adverse impact on the performance of public sector oilcos.

With the inflation rate staying below 5% for several weeks now, it is felt that most economic indicators are in favour of a fuel price hike. “Politically, it will be easier to do it now than a few months from now. In the inflation basket, oil products are just 12%. So, there will not be any significant impact on inflation,” a source said.

It will, however, be difficult to increase prices of fuel to market-determined rates in one go. It is likely that the government may adopt a gradual approach by increasing price of petrol by Rs 2/litre and diesel Re 1/litre, to begin with.

Interestingly, it is not the petroleum ministry but the finance ministry that seems in a hurry to push for a fuel price hike. The petroleum ministry, which had initiated the move for a fuel price hike sometime back, now prefers to maintain silence on this issue. The finance ministry is worried because it will have to take a decision on new oil bonds soon in view of rising international prices.

“We will have to speak to the oil ministry. International prices are going up. We will have to take a view shortly whether we want to let OMCs continue to bear the burden or raise prices,” a finance ministry official told ET.

In a recent meeting, Indian Oil chairman Sarthak Behuria had said the company had been losing Rs 90 crore every day on the sale of fuel. The under-recovery for kerosene is around Rs 14.63 a litre and for cooking gas Rs 189.14 per cylinder.

Public sector OMCs are struggling because the government is yet to take a call on issuing bonds for the last quarter. “Oilcos have resorted to taking large exposures in the debt market to tide over the liquidity crunch,” a PSU official said.

Last time, prices of petrol and diesel were hiked in June 2006 by Rs 4/litre and Rs 2/litre. But it was neutralised in two phases in November and February.