Oil Ministry pushing for hike in diesel, LPG prices

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Close on the heels of a 70 paise per litre hike in petrol prices, the Oil Ministry is pushing for an increase in diesel and domestic cooking gas LPG prices, even though it is unsure of political support for the unpopular move with the ruling UPA alliance.

"The most important reform is not allowing FDI in retail, but cutting subsidies on diesel, LPG and kerosene," a top Oil Ministry official said here.

"There is absolute consensus that prices of diesel, LPG and even kerosene have to be raised. But when and how is uncertain," the official said.

He said Vice President's election is on August 7 and "they say you cannot raise rates before that. Soon after that is the Monsoon session of Parliament and though nothing stops us from raising prices when Parliament is in session but we do not have numbers."

Diesel, LPG and kerosene prices have not been raised since June 25 last year even though cost of raw material (crude oil) has spiralled and rupee depreciated against US dollar making imports even more costlier.

State-owned oil firms currently sell the fuel at a loss of Rs 11.26 a litre while they lose Rs 319 on sale of every 14.2-kg LPG cylinder for domestic consumption. Besides, they are losing Rs 28.56 per litre on kerosene.

Without a price hike, a staggering Rs 160,000 crore of losses on these fuel sales would have to be met by the government this fiscal.

A ministerial panel which is authorised to decide on pricing of the three fuels has not been reconstituted after its previous head Pranab Mukherjee resigned as Finance Minister to get elected as the President of India.

In absence of the Empowered Group of Ministers (EGoM), the ministry is contemplating sending a price hike proposal to the Cabinet Committee on Economic Affairs (CCEA) and leaving the decision to the Prime Minister, he said.

State-owned oil firms on Monday hiked petrol price by Rs 0.70 per litre on the back of rising international oil prices and depreciating rupee.

"Even after this hike, they (oil companies) are losing 71 paisa per litre. I did not want to go in for another shock (to consumer)," the official said.

The hike ended two rounds of price cuts effected in June that had partly offset the massive Rs 7.54 a litre increase effected in May.

The official indicated that it may not be possible to raise rates of diesel, domestic LPG and kerosene before the Vice President's election scheduled for August 7.

Soon after that the Monsoon Session of Parliament begins and Congress may face tough time if a hike is effected during the session.

The Empowered Group of Ministers (EGoM), which is authorised to decide on diesel, LPG and kerosene pricing, has not met since June 25, 2011. The panel was previously headed Pranab Mukherjee, who last month resigned as Finance Minister to get elected as President of India.

The EGoM, which has representatives of key allies like Trinamool Congress, DMK and NCP, has so far not been reconstituted and it is not clear who will head it.

"We can send a proposal (for raising prices) to the Cabinet Secretariat for listing before the CCEA and it would be up to them to decide when it is taken up," he said.

Though an high-powered ministerial panel, EGoM had in June 2010 decided in-principle to deregulate diesel prices, the nation's most consumed fuel continues to be tightly controlled by the government.

Petrol prices have been reduced twice last month after the massive Rs 7.54 a litre increase effected from May 24. Rates were cut by Rs 2.02 per litre from June 3 and then again by Rs 2.46 a litre from June 29.

In Delhi, petrol after Monday's price increase costs Rs 68.48 per litre, while a litre of diesel costs Rs 41.29.

The government had in June 2010 deregulated or freed petrol pricing from its control but rarely have the retail pump rates moved in tandem with market/international prices.

"There are losses on petrol sale currently. But there is excessive volatility both on the rupee and international oil prices," the official said.

Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) together are projected to lose Rs 1,60,000 crore on sale of diesel, domestic LPG and kerosene this fiscal.