The government’s move to consider rollback of deregulation of bulk diesel prices is being dubbed as “retrograde” by industry experts as it has come at a time when the Union oil minister M Veerappa Moily is looking at a 3-6 month timeframe to fully deregulate diesel prices.
Oil secretary Vivek Rae on Thursday said the government was reviewing its policy of deregulating diesel prices for bulk consumers introduced in January last as such sales have dropped drastically and those consumers have shifted to the retail sector.
As a result of dual pricing, most state transport utilities are now depending on retail outlets, leaving railways and defence as the only bulk consumers in the country.
After prices were market linked, the bulk diesel sales have dropped more than 40% on-year with their share in overall diesel sales falling to 10% from 18%.
“Deregulation of bulk diesel does not seem to have benefited government. If government goes ahead with this decision, it would be a step backward,” an official of a private retailer said.
This can lead to at least 5-10% increase in diesel losses. The diesel under-recovery and subsequent oil subsidy could rise by Rs 4,000-8,000 crore, Gagan Dixit, analyst at Quant Broking said.
Positive impact of this decision could be that bulk consumers would return to their dedicated outlets. Freight hikes by Railways on account of higher diesel price could come down and fuel retail outlets could see less congestion.
Current under-recovery on diesel is Rs 9.5 per litre and in past one year government has hiked diesel price 13 times, a cumulative increase of Rs 6-7 per litre, highest hike ever seen a year’s time.
The saving grace is that crude prices have been falling and rupee has been firm at 62 against dollar, giving hopes of speedier fall in diesel under-recovery.