No fuel price hike till global crude breaches $70

[B. Karthick]

NEW DELHI: The government may not increase pump prices of petrol and
diesel until the average price of crude oil for domestic consumption
breaches the $70-a-barrel mark, a senior government official said. The
average price of crude oil this quarter is around $57 a barrel, lower
than the $70-a-barrel benchmark that would trigger the upward price
revision.

“The government is unlikely to raise auto fuel prices immediately. It
(rising prices of global crude oil) is certainly a matter of concern,
but a fuel price hike will be considered only when the average crude
price reaches $70 a barrel,” petroleum minister Murli Deora told .

It is estimated that at the current price of crude oil, state-owned
oil companies—IOC, BPCL and HPCL—will post a revenue loss of Rs 40,000
crore in 2009-10 for selling fuels below the cost. “The figure is
still manageable compared with the Rs 1,03,000-crore revenue loss in
the previous financial year and Rs 77,000 crore in 2007-08,” an
official in the oil ministry said on condition of anonymity. The
government, which regulates retail prices of petrol, diesel, kerosene
and cooking gas, compensates state-owned oil marketing firms for
selling fuel below the cost.

He said the government is aware that the rising subsidy bill will not
be sustainable in the long run and it will take ‘appropriate decision
in appropriate time’.

“The government can’t shield consumers from rising global oil prices
for ever. They will have to bear some burden, but how much, that will
be determined in the due course,” he said, hinting at a deregulation
of fuel prices.

As per government officials, the issue was also discussed between Mr
Deora and finance minister Pranab Mukherjee on Monday. It is likely
that the finance minister may address the (subsidy) issue in the
forthcoming Budget.

Mr Deora, who had announced on the first day of assuming office that
his ministry would send a proposal to the Cabinet to deregulate auto
fuel prices, seems to have developed cold feet. Deregulation, at this
point when the crude oil prices have already crossed $65 a barrel,
would mean petrol prices will immediately go up by Rs 6 a litre and
diesel by Rs 3 a litre.

The daily average price of crude oil for domestic consumption, which
was below $50 a barrel in the last week of April, rose to touch $69.85
a barrel on Monday.