Oil minister pushes for fuel price hike to curb subsidy (Lead)

June 7th, 2010 - 5:38 pm ICT by IANS  

Pranab Mukherjee New Delhi, June 7 (IANS) Ahead of a high-power meeting here Monday evening, petroleum minister Murli Deora said fuel prices had to be hiked to offset the losses of state oil marketing companies.
The empowered group of ministers on fuel pricing, chaired by Finance Minister Pranab Mukherjee, is set to consider a rise in fuel price of up to Rs.3.5 per litre.

“It has to be done,” Deora, who is also a member of the panel, told reporters ahead of the meeting when asked if it was the right time to increase fuel prices when price rise was one of the main concerns for the government.

“We have to do something,” he added, noting that the three major oil marketing companies will otherwise lose about Rs.90,000 crore this fiscal year, as they sell transport and cooking fuel at subsidised rates, even as international prices have increased.

Both the finance and oil ministries now feel large subsides on fuels are unsustainable and want action taken on the Kirit Parekh Committee report that has favoured the freeing of transport fuel products pricing for oil marketing companies, officials said.

The meeting is set to be held at North Block at 4.30 p.m.

The decontrol of fuel pricing - at least for petrol and diesel - now looks certain, an official said, but conceded that some constituents of the United Progressive Alliance (UPA) government, notably the Trinamool Congress, were opposed to such a move.

The meeting comes against the backdrop of oil ministry’s estimate that under-recoveries on fuels — the industry jargon for selling fuel products below cost — have risen to an alarming Rs.72,000 crore ($16 billion).

International crude oil prices rose from $28 per barrel in 2003 to $147 per barrel in 2008 and now quotes at around $75 per barrel (159 litres make a barrel), putting major burden on government resources, as also on state-run oil firms.

The group also includes Agriculture Minister Sharad Pawar, Chemicals and Fertiliser Minister M.K. Azhagiri, Railway Minister Mamata Banerjee, Road Transport Minister Kamal Nath and Planning Commission Deputy Chairman Montek Singh Ahluwalia.

Oil marketing companies had to contend with under-recoveries of Rs.46,051 crore last fiscal, for which the government provided them assistance of Rs.26,000 crore, while the upstream oil companies contributed around Rs.14,430 crore.

The balance had to be absorbed by the oil marketing companies.

During this year, the government has already approved prices of transport prices to be raised twice, so that the fuel subsidy bill does not shoot up from the Rs.90,000 crore ($20 billion) budgeted for the current fiscal.

In the federal budget for this year, presented Feb 26, the finance minister hiked petrol and diesel prices by Rs.2.71 and Rs.2.55 a litre, respectively. Then July 2, their prices were raised by Rs.4 and Rs.2 a litre in that order.

As a result, petrol in the national capital, for example, costs Rs.47.93 per litre, while diesel costs Rs.38.10 per litre.

dm/ap/dg

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