Government to meet Friday on raising diesel, LPG prices: Report

NEW DELHI: An Empowered Group of Ministers (EGoM) headed by the Finance Minister Pranab Mukherjee will meet on Friday to discuss raising price of diesel, liquified petroleum gas and kerosene, a finance ministry official said on Thursday. State-run fuel retailers raised petrol prices by a massive Rs 7.54 per litre, the first hike in rates in six months.

"The meeting is scheduled tomorrow afternoon to discuss raising diesel prices," the official, who declined to be named due to sensitivity of the issue, told media.

He said the oil ministry was expected to make a proposal on the hikes at the meeting.

Government's hefty subsidy bill for diesel, kerosene and LPG is a budget-buster that forces heavy government borrowing and weighs on investor sentiment. High global energy prices and a declining rupee, meanwhile, exacerbate the current account deficit in a country that imports 80 percent of its oil. Oil companies lose about Rs 14 ($0.25) per litre on diesel, which is much more widely used than petrol.

"We think the government's ability to implement this price hike could raise market expectations about price hikes in other more critical fuels. While diesel prices in particular would need immediate attention, significant price increases are unlikely, in our view," Goldman Sachs wrote on Thursday.

FICCI said that government should deregulate the prices of kerosene, diesel and cooking gas. "Petrol price hike will only partially cover the under recoveries on account of kerosene (Rs 31 per litre), diesel (Rs 13.64 per litre) and Rs 479 for each cylinder of LPG. It is time that government allows these prices also to move to their market-determined level," it said in a statement.

Last week, government said that Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp together lost Rs 148,231 crore on selling diesel, domestic LPG and kerosene at rates lower than cost in 2011-12.

Oil marketing companies incur losses due to depreciation of rupee against dollar, Minister of State for Finance Namo Narain Meena said in a written reply in the Lok Sabha.

"A loss of 100 paise in rupee's value against the US dollar in a year costs oil marketing companies Rs 9,200 crore per annum," Meena said.

Giving details, he said the impact of depreciation of rupee by 100 paise on per litre of diesel, kerosene and LPG is Rs 0.87, Rs 0.85 and Rs 14.51, respectively. The estimated impact on annual basis is Rs 6,850 crore, Rs 850 crore and Rs 1,500 crore on diesel, kerosene and LPG, respectively.

Government ended controls on petrol prices and raised prices of other key petroleum products on June 26, 2010.