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Wednesday , August 20 , 2014
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Crude fuels diesel decontrol hope

New Delhi, Aug. 19: The softening of global crude prices to about $100 per barrel will help the government cut the oil subsidy bill and deregulate diesel prices.

According to petroleum ministry estimates, the oil subsidy can be trimmed around Rs 6,000 crore if crude prices stay at $100-level and the rupee stabilises at 60 against the dollar till the end of this fiscal.

In the budget for 2014-15, finance minister Arun Jaitley had marginally hiked the overall subsidy bill, including food, fertiliser and petroleum, by Rs 5,141 crore to Rs 2,60,657 crore.

The individual subsidy bill for each of the three items will stand at Rs 1.15 lakh crore (food), Rs 63,427 crore (petroleum) and Rs 72,970 crore (fertiliser).

The government plans to contain fiscal deficit at 4.1 per cent of GDP (gross domestic product) in 2014-15 against 4.5 per cent in the previous year.

Deutsche Bank in a research report said a dip in global crude prices would help the government to save around $8 billion on the import bill.

“India imports 80 per cent of its crude oil requirement. Net oil imports at $95 billion accounted for 21 per cent of total import bill and 64 per cent of the trade deficit in 2013-14,” the bank said.

The bank believes that the government’s budgeted oil subsidy and fiscal deficit are based on Brent oil price assumption of $110 per barrel. “The current spot Brent crude price of about $102 barrel implies potential annualised savings of $8 billion on the import bill and $4.5 billion on fuel subsidies,” it said.

Goldman Sachs said, “It sees almost no losses on diesel after September price hike. This implies, we could effectively be done with the monthly cycle of diesel price increases in next two months and diesel will be market-priced.”

The UPA government had in January 2013 decided to raise diesel prices in small doses of 40-50 paise per litre every month till the losses are completely eliminated.

Rates have cumulatively risen by Rs 11.24 per litre in 18 instalments since January 2013.

The Petroleum Planning and Analysis Cell (PPAC), which works under the oil ministry, said the under-recovery on diesel in the second fortnight of August would increase to Rs 1.78 per litre compared with Rs 1.33 per litre in the first fortnight of the month.

According to some reports, given the efforts to move towards market-linked diesel rates and an expected decline in crude prices, under-recoveries on petroleum products are expected to halve in this fiscal.

The decline will have a positive impact on both upstream and downstream public sector oil companies.

The under-recoveries for 2014-15 are projected at Rs 91,665 crore against Rs 139,869 crore in 2013-14.


Oil subsidy can be cut by Rs 6,000 crore if crude prices stay at $100 and rupee remains at 60 till fiscal-end

It will also be conducive to deregulation of diesel

Under-recovery on diesel in the second fortnight of August to rise to Rs 1.78 per litre from Rs 1.33 per litre in the preceding fortnight