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Fuels now cheaper, oil firms poorer

New Delhi, Nov. 29: The government has reduced the price of petrol by Rs 2 a litre and that of diesel by Re 1 a litre with effect from midnight tonight.

Petrol will now cost Rs 48.99 per litre in Calcutta, while diesel will be priced at Rs 33.92 a litre. The prices of the two fuels have come down from Rs 51.07 and Rs 34.96, respectively.

The decision may bring some relief to consumers, but will hit the bottomlines of public sector oil companies.

Senior Indian Oil officials said the public sector oil companies were making a loss of 41 paise per litre on diesel sales, which will now go up to Rs 1.41 per litre. The profit of Rs 4 per litre on petrol sales, which was helping to cover part of the loss on diesel sales, will now come down to Rs 2 per litre.

Petrol in New Delhi will now cost Rs 44.85 a litre, while diesel price will come down from Rs 32.25 a litre to Rs 31.25 per litre. The prices of the two fuels vary between states due to the different rates of state levies on these products.

The prices of petrol and diesel were last reduced on November 16, 2004, but had to be raised three times since as international prices of crude surged relentlessly. In the last hike on June 5, petrol prices were jacked up by Rs 4 per litre, while that of diesel was raised by Rs 2 per litre.

“UPA chairperson Sonia Gandhi had drawn the attention of the government to suitably reduce the prices of petrol and diesel to protect the interests of consumers in general and of vulnerable sections in particular,” petroleum minister Murli Deora said in a statement tabled in Parliament.

Deora had last week said the government would consider reducing prices only if international prices of crude came down to $52 per barrel. However, this rationale has been outweighed by the political compulsions of the government. As a result, prices have been reduced even though the Indian basket is trading at $58.13 a barrel.

Retailers upset

The decision has irked oil companies who import over 70 per cent of their crude oil requirements. Since crude accounts for as much as 90 per cent of the cost of production of petroleum products, there is little that they can do to cut costs once international prices of crude shoot up.

These downstream oil companies are also losing heavily on the sale of kerosene and LPG.

“Today, the prices of international crude are in the range of $56-58 per barrel. The extent of under-recovery on petrol and diesel combined has come down. However, the situation with regard to LPG and kerosene continues to remain difficult as no price increases were made in these products,” Deora said in Parliament today.

Oil firms lose Rs 14.40 on every litre of kerosene sold through the public distribution system (PDS) and Rs 114 on sale of every LPG cylinder sold to households.

Deora said 87 per cent of the burden of increased international oil prices was borne by the government through oil bonds and oil PSUs. Only a marginal increase in prices of petrol and diesel of Rs 4 and Rs 2 respectively was effected in June 2006 against the required increase of about Rs 10 per litre each.

With global prices of crude coming down from the peak of over $70 per barrel in August, oil firms had got some breathing space. However, with today's cuts in the prices of petrol and diesel their finances will come under strain.

IOC chairman Sarthak Behuria said the company still had under-recoveries to the tune of Rs 2,462 crore for the first half of the current fiscal which had pulled down the real net profit figure to Rs. 4,831 crore. However, this is lower than the corresponding figure of Rs 5,627 crore for the previous year.

Inflation check

The government expects the petrol price cut to help tame inflation, which is ranging at around 5 per cent. Finance minister P. Chidambaram said the reduction in prices “should help in easing inflation to some extent, but it (inflation) is mostly driven by primary products”.

Primary articles, comprising the two categories of food and non-food articles, have a weight of 22.02 per cent in wholesale prices index on which inflation is based. Petrol and diesel are part of fuel, power, light and lubricants category, which has a weightage of 14.23 per cent.

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