Decision on Freeing Oil Prices Put on Hold

The government today deferred a decision on freeing petrol prices even as Oil Minister Murli Deora will go into a huddle with Finance Minister Pranab Mukherjee to decide on a subsidy sharing formula.

Mukherjee's repeated refusal to compensate state-run fuel retailers for losses on LPG and Kerosene led Deora to take a proposal for freeing petrol prices and gradually increasing diesel rates to an oil sector review meeting called by Prime Minister Manmohan Singh.

Freeing petrol price would have resulted in a Rs 3 per litre increase in rates.

While a decision on the proposal was put on hold for more consultations, Deora is scheduled to meet Mukherjee tomorrow morning to sort out issue of compensation to IOC, BPCL and HPCL, sources said.

Government has not allowed Indian Oil, Bharat Petroleum and Hindustan Petroleum to raise petrol, diesel, domestic LPG and kerosene prices despite cost of raw material (crude oil) rising to USD 82 per barrel.

The three firms are projected to lose Rs 44,300 crore in revenues on fuel sale this fiscal as domestic rates are pegged at a crude price of around USD 66 a barrel.

The three firms currently sell petrol at a loss of Rs 3.06 a litre, diesel at Rs 1.56 per litre, kerosene at Rs 17.23 per litre loss and LPG at a discount of Rs 299.01 per cylinder. MORE

IOC, BPCL and HPCL are projected to lose about Rs 31,700 crore on LPG and kerosene this fiscal and Deora is seeking either cash or oil bonds to keep the firms afloat.

Planning Commission Deputy Chairman Montek Singh Ahluwalia and former Planning Commission member Kirit S Parikh, who heads an expert committee on fuel pricing, also attended the deliberations.

Officially the meeting has been called to take stock of the petroleum sector, especially the financial position of PSU oil retailers, the source said.

The Government had failed to provide the promised oil bonds to make up for the revenue loss on LPG and kerosene, in the absence of which HPCL and BPCL reported losses in Q2 while IOC barely scrapped through.

Besides the three, private fuel retailers Reliance Industries, Essar Oil and Shell have also sought freeing of petrol and diesel prices to give them level playing field. Sources said the meeting discussed the current mechanism to share revenue losses incurred by the state-owned oil retailers with upstream companies like ONGC and the government.

Besides reviewing both upstream and downstream sectors, the meeting also held preliminary discussions on the findings of the Parikh committee, he said.

The group, which is examining government's pricing policy for petrol, diesel, LPG and kerosene, is likely to give its final recommendations on a sustainable pricing system by end of this month.

The Government had, earlier this year, said that it will issue oil bonds to compensate for the revenue lost by IOC, BPCL and HPCL on selling LPG and kerosene. The revenue they lose on selling petrol and diesel is made up by upstream firms Oil and Natural Gas Corp (ONGC) and Oil India Ltd.

However, the finance ministry has not issued any bonds in the first three quarters and so the subsidy mechanism has to be reviewed now.

Heads of ONGC, IOC, HPCL, BPCL, OIL and GAIL India Ltd are likely to attend the meeting.