Increase in fuel prices can further push up inflation which is ruling at 8.98%.
A day after UPA and its ally Trinamool Congress registered electoral victory, the Union government allowed its oil marketing companies (OMCs) a steep hike of Rs 5 a litre in petrol prices. This is the steepest-ever hike since December 2008 and a second one in the calendar year.
Though petrol was officially decontrolled in June 2010, the government did not allow them to increase the prices after January this year. Successive hikes in petrol prices after decontrol had pushed up prices by almost Rs 7 till then. Now, petrol price at Rs 63.37 in Delhi is Rs 12 higher than the June 2010 level when consumers paid Rs 51.43 a litre.
PETROL PRICES IN METROS (in Rs per litre)
Petrol price was officially decontrolled on June 26, 2010 under Petroleum Minister Murli Deora. The increase was then Rs 3.50 a litre. Since then prices have been hiked seven times, except in Mumbai where it marginally came down once. Despite decontrol and international prices rising, oil companies did not raise prices since January 2011. Last such hike was in December 2008 when petrol cost Rs 50.56 a litre.
Bharat Petroleum (BPCL) on Saturday hiked price by Rs 4.99 a litre and Hindustan Petroleum (HPCL) by Rs 5.01.
Petrol at BPCL outlets currently costs Rs 58.39 a litre and at HPCL pumps, Rs 8.38 a litre.
The oil marketing companies said Saturday’s increase was only 50 per cent of the required increase.
“The full price hike has not been passed on to consumers. We were incurring a loss of Rs 10.50 on a litre of petrol,” said a senior executive of Hindustan Petroleum Corporation who did not want to be named.
The revenue loss on petrol that includes a portion of marketing margins now stands reduced by half.
“Despite very high global crude oil prices and a huge debt burden of oil companies, the increase is only moderate keeping the consumers’ interest in view,” said an IndianOil statement.
After the petrol price increase, the next increase could come in diesel which is being sold Rs 16.17 lower than the benchmark price and LPG. Oil marketing companies are selling kerosene at a loss of Rs 29.69 a litre and 14.2-kg LPG cylinder at Rs 329.73.
Increase in fuel prices could further push up inflation, which is ruling at 8.98 per cent, since diesel has a weightage of 4.6702 per cent in the wholesale price index though petrol has a weight of 1.09015 per cent. Fuel price index was 12.25 per cent for the year to April 30, 2011. Union Finance Minister Pranab Mukherjee has already indicated that the country’s GDP growth could be lower than the targeted 9 per cent by a percentage point due to inflationary pressure coming from oil prices.
The government had not been taking a call on fuel price increase since December despite the benchmark Indian basket of crude oil prices touching a peak of $121.90 a barrel on April 28 this year after it averaged $85 in 2010-11.
The June 2010 hike in diesel, kerosene and LPG prices was done at $75 a barrel.
In the current financial year so far, the oil marketing companies have incurred a revenue loss of Rs 22,000 crore on sale of diesel, kerosene and LPG, prices for which are still controlled by the government.
Though upstream oil and gas producing companies are expected to share one-third of this loss, called underrecovery in industry parlance, a meeting of the empowered group of ministers is expected to take up the issue of hike in these products next week.
A date for EGoM has not yet been fixed.
OMCs are able to show profits on their books because of being compensated by the upstream companies Oil and Natural Gas Corporation, Oil India and GAIL Ltd, besides the government.
The three upstream companies are asked to share one-third of their losses since a spike in global prices help them. They are paid international parity price for their crude oil and other products sold to the marketing companies. On the strength of Rs 20,000 crore released earlier this week, the three oil marketing companies are expected to show a profit in their 2010-11 results.
The release of the amount has already wiped out the petroleum subsidy provided for in the current year’s budget.