Price freedom: Petrol costlier by Rs 3.68?

1 Jun 2009,

NEW DELHI: If the government was to implement a proposal to allow oil marketing firms to set pump prices in tune with the global trend, petrol will become dearer by Rs 3.68 but diesel will remain unchanged going by the present price levels prevailing in the international crude and product markets.

The recent rise in international crude prices as well as benchmark product markets of Dubai and Singapore has increased losses of state-run oilmarketing companies. Till last fortnight, these firms were losing a little less than Rs 2 on a litre of petrol but making 30-50 paisa on diesel. While loss on petrol has gone up, profit on diesel has come down to mere 2 paise per litre as crude has been hovering around $60/barrel.

After taking charge for a second stint as oil minister on Friday , Murli Deora had said, “The issue of deregulation is being discussed and the government will come to a decision (on whether to implement it) in six to eight weeks.” TOI had last fortnight reported oil ministry officials having drafted a note for seeking Cabinet approval to implement the scheme. Deora also began wider consultations on the feasibility of the proposal , starting with former Planning Commission deputy chairman Montek Singh Ahluwalia — who is expected back at the job.

According to the proposal, oilmarketers will be free to set retail prices of motor fuels till crude reaches $75/barrel. At this point, the government will step in with subsidy to shield people. Fuel prices in India are a result of benchmarking against their prices in Dubai and Singapore markets as well as a linkage with crude. With crude already at $60/barrel and the government’s monitoring body projecting a $78-80 price towrds the second half of the fiscal, it will not be long before controls are restored.

Throughout crude’s high run last year, Deora had cushioned consumers even when it peaked at $147 a barrel by firmly controlling retail prices. He made up losses of state oilmarketers firms by giving Centre’s IOUs and forcing public sector explorers to give discount on crude.

While this protected consumers and enriched Congress’s aam aadmi image, it forced private retailers to close their networks. In absence of government subsidy, they could not compete with the artificially low prices being offered by state firms. For state firms too, the bonds kept bottomlines look good but they had to borrow money at high interest to meet operational expenses.