After a gap of nine months, the government on Monday allowed oil marketing companies to increase petrol and diesel prices by 8% and 5%.
NEW DELHI: After a gap of nine months, the government on Monday allowed oil marketing companies to increase petrol and diesel prices by 8% and 5%, respectively, pushing petrol prices in Mumbai above the Rs 50-mark.
Oil companies have been allowed to raise petrol price by Rs 4 a litre, against a required increase of Rs 10.55 a litre. Diesel price would increase by Rs 2 from Monday midnight, though the required increase was Rs 9.88 a litre.
With this, oil companies stand to benefit Rs 9,300 crore. The bulk of the estimated Rs 73,500-crore under-recovery in petroleum products came from petrol and diesel at Rs 46,300 crore. The rest was incurred on account of non-revision in LPG and kerosene prices.
This time, the situation appeared different from last year when oil companies had to suffer an under-recovery of Rs 14,965 crore in diesel and petrol, while that on kerosene and domestic LPG was Rs 24,630 crore.
“The combined net worth of public sector oil marketing companies is Rs about Rs 41,500 crore, against which the burden of Rs 73,500 crore is simply far too heavy,” said a government note.
Reacting to the price increase allowed by the government, Indian Oil Corporation director (finance) S V Narasimhan told DNA Money: “The increase is in just petrol and diesel, but so long as there is a package we will be able to bridge the gap.”
The cabinet decided on a package to distribute the projected Rs 73,500 crore under-recovery for 2006-07, calculating crude oil price at $ 70 a barrel. The package included issuing Rs 28,000 crore bonds to the oil companies, while also changing the method of calculating under-recovery.
Petroleum secretary M S Srinivasan said stand-alone refiners would be asked to give discounts to the tune of Rs 2,500-3,000 crore. Upstream crude producers like ONGC, GAIL India and Oil India will share a higher burden of Rs 24,000 crore as against Rs 14,000 crore last year.
R S Sharma, chairman and managing director of Oil and Natural Gas Corporation, told DNA Money that such a burden-sharing was mere transfer of revenue from one company to the other. “Instead of subsidy-sharing, which is viewed adversely by investors, there should be a more transparent and equitable burden-sharing. We are more amenable to increase in cess on an ad-valorem basis rather than subsidy sharing,” Sharma added.
The government also decided to shift to trade parity mechanism from the current import parity. This would automatically reduce the impact by Rs 2,200 crore.
While import parity is the price at which a product can be imported, trade parity takes into account the fact that 20% of the products are exported. The export parity price for this 20% normally works out to be cheaper than import parity.
Customs duty on petrol and diesel has also been cut to 7.5% from 10%. This would not mean any revenue loss to the government since no petroleum product is being imported. However, it would reduce the notional under-recovery calculation by Rs 4,100 crore. Srinivasan admitted that this would bring down the effective protection available to the refiners.
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