Petrol pinch

New Delhi, Sept. 7: The government may raise prices of auto fuels by a token Re 1 a litre to guard public sector oil marketing companies against a renewed flare-up in global crude price.

In a note prepared for the Union cabinet, the petroleum ministry has proposed a combination of price hikes, lower taxes on fuel and oil bonds for the companies.

The government wants to take advantage of lower inflation to push through the price hike proposal.

It is unwilling to substantially raise prices because there are apprehensions among policy-makers of a rise in food and fuel prices in the coming months.

Finance minister P. Chidambaram today expressed concerns over food and fuel prices when he said the recent fall in inflation was a cause for happiness as well as worry. Chidambaram said, “Since crude oil prices are at $74 per barrel, the outlook is of caution.”

The government today said the inflation rate was at a 16-month low of 3.79 per cent.

Officials felt that in proposing a small hike in fuel prices, the ministry might have been influenced by unchanged prices at the level of consumers. This means falling inflation is only for wholesale markets; prices at the retail level are still high.

The loss to the oil companies is now Rs 2.79 per litre on petrol and Rs 4.65 on diesel.

In kerosene, the loss is Rs 15.50 on every litre, while it is Rs 178.15 on a cooking gas cylinder.

For 2007-08, the ministry has projected a revenue loss of Rs 16,120 crore on kerosene for oil companies.

The loss is Rs 11,088 crore on cooking gas, Rs 6,682 crore on petrol and Rs 18,562 crore on diesel.

A hike of Re 1 in petrol and diesel means a rise in revenue by about Rs 3,000 crore. This is small compared with the loss of Rs 52,000 crore on oil products.

In addition to fuel price hike, the note has proposed a price increase of Rs 10 on every LPG cylinder, waiver on crude customs duty and removal of the excise levy on kerosene.

The ministry also wants oil bonds to compensate for at least one-third of the under- recoveries from the sale of oil products.

Its proposal on LPG cylinders could generate another Rs 400 crore for the companies.

The waiver on kerosene will reduce the cost price to Rs 25-30 from Rs 35-36 a litre. The actual sale price of kerosene is about Rs 9-10 a litre.

The ministry had earlier approached the Cabinet Committee of Economic Affairs for a price hike. However, the cabinet could not arrive at a decision.