Petrol, diesel may run out of subsidy fuel drop by drop

NEW DELHI: Your fuel bill, which is far removed from the global oil prices, may not remain cushioned forever. The government is unlikely to provide endless protection against rising prices of petrol, diesel and cooking gas and plans to increase prices of petrol and diesel ‘gradually’ to bring them at par with market rates.

This was stated by the petroleum ministry while reviewing the fuel subsidy structure of diesel and petrol. It plans “regular and small adjustments in price so as to pass on gradually the full price impact to consumers”. The review was done by the working group on petroleum & natural gas, chaired by the petroleum secretary.

The working group has also stressed on phasing out or a substantial reduction in domestic cooking gas (LPG) subsidy. In 2006-07, consumers availed of a subsidy of Rs 178.66 per cylinder on cooking gas. Of that, Rs 156.08 per cylinder was shared by oil marketing companies (OMCs) and the balance Rs 22.88 per cylinder was in the form of budgetary support.

The working group expressed its views in a presentation to the steering committee on energy sector, headed by member (energy) of the Planning Commission. The exercise would eventually result in an energy sector strategy for the 11th Five-Year Plan.

Reviewing the policy of kerosene subsidy, the group told the steering committee the subsidy should be “restricted to BPL (below poverty line) families”. In its report, the working group warned “the current scenario (of subsidising fuel) cannot be sustained for any length of time and radical solutions are called for”.

“Higher crude prices necessitate adjustment in retail selling prices of sensitive petroleum products. The impact is so large that oil price vulnerability can be a great dampener to our GDP growth and has the potential to disrupt not only future development but also our fiscal position significantly,” the report said. In refining operations, cost of crude constitutes over 85% of the total product cost.

Due to high dependence on imported oil (about three-fourths of the country’s crude requirement is imported) in this era of high oil price, the import bill is very high. Crude import cost jumped by over 50% in 2005-06 to around Rs 1.72 lakh crore compared to the previous year.

Stressing the government’s commitment to protect the economically vulnerable and weaker sections from the unprecedented price hike, the report said the subsidy burden is projected to be around Rs 73,500 crore in 2006-07. Accordingly, public sector upstream companies are expected to cough up Rs 24,000 crore while PSU OMCs would bear Rs 9,000 crore. The government has committed financial support through bonds worth Rs 28,300 crore. Together, the government and oil PSUs would shoulder about 87% of the total subsidy burden.