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Modi, Goldman give oil panel a headache

New Delhi, Dec. 25: The discussions at next week’s meeting of the group of ministers on fuel prices will be in the backdrop of Gujarat poll results and a Goldman Sachs projection of a surge in the global price of crude.

The victory of BJP’s Narendra Modi in Gujarat has made the Congress jittery, while the US investment bank’s forecast spells more worry for policy-makers.

In its oil forecast for 2008, Goldman has said that prices could reach $105 per barrel and rule at an average level of $95.

Two years ago, Goldman was the first to predict that oil prices could spike to $100 per barrel in 2007.

Its latest forecast is based on assumptions of oil supplies being kept tight by the Organisation of the Petroleum Exporting Countries and a weak dollar.

A Goldman report said India’s fuel prices needed to be increased about 20 per cent to reflect global price movements and allow state-owned oil marketing companies to wipe out their under-recoveries.

It said if the prices were raised 10 per cent, the wholesale price index would go up 0.6 percentage points over 12 months, with the impact being the maximum after four months.

The oil companies — the Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited — are projected to lose Rs 69,753 crore on the sale of petrol, diesel, LPG and kerosene this fiscal as the government has not allowed them to raise prices in line with the price of imported crude.

Petrol and diesel prices were last raised on June 6, 2006.

Oil firms will be compensated for 42.7 per cent of their revenue losses through oil bonds. Another 35 per cent of the losses may be compensated by the upstream oil PSUs.

The group of ministers, headed by external affairs minister Pranab Mukherjee, will have to balance political and economic considerations at the meeting.

The petroleum ministry will seek a marginal hike in the prices of petrol and diesel.

It will also urge the government to cut excise and customs duties or meet a greater proportion of the losses of the oil companies through oil bonds. It may even seek a mix of the measures.

Analysts say the political implications of a fuel price hike will also have to be considered by the ministers.

Any hike in the prices will attract strong criticism from the Left.

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