EGoM meeting on fuel prices deferred again

With food prices and corruption charges flying high, the government finds itself in a bind over petroleum prices. For the second week in a row, it postponed a crucial meeting of the empowered group of ministers (EGoM) on fuel pricing that was to take a call on diesel price increase.

The meeting was earlier scheduled for December 22, but was postponed for December 30. The rate of food inflation touched a five-week high of 12.13 per cent for the week ended December 11, data for which were released last week. Any increase in diesel prices would push the prices of fruit and vegetables, numbing the firefighting efforts of the government and giving the Opposition another issue to raise.

Besides banning of onion exports and removing import duties, the government has extended the ban on export of pulses and zero duty on import of pulses till March 2012. Stockholding limit on sugar will also continue for the next three months to keep prices in check. Besides, the government will also release additional five million tonnes of wheat and rice.

Diesel has a weight of 4.6702 per cent in the wholesale price index, while LPG has 0.91468 per cent and kerosene 0.73619 per cent. “Existing pressure from food and vegetable prices may prompt the government to defer a rise in diesel prices by a few weeks. But a price increase is warranted in the last quarter, given high crude oil prices,” said YES Bank Chief Economist Shubhada Rao.

The underrecovery, or the revenue oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum — lose on selling diesel below cost, stands at Rs 6.08 a litre today. The oil companies have also been losing Rs 17.72 a litre on sale of kerosene and Rs 272.19 on every 14.2-kg LPG cylinder. This month’s Rs 2.95-2.96 a litre raise in petrol prices is lower than the desired increase of Rs 4.20, which has been resulting in a loss of Rs 1.25 on sale of every litre of petrol. The three companies are projected to end the financial year with a Rs 68,361-crore revenue loss.

The OMCs, which purchase crude oil at market rates, are required to sell diesel, kerosene and LPG at government-subsidised prices, which results in losses. These losses are usually compensated through a mix of cash subsidy from the government and discounts from upstream companies like Natural Gas Corporation and Oil India Ltd.

Petrol, the price, of which stands decontrolled since June 25, has a weight of 1.09015 per cent. The price of petrol was increased by Rs 2.95-2.96 a litre earlier this month and its impact on WPI inflation would be visible when data for December are announced. WPI inflation for November stood at 7.48 per cent.

The average price for the Indian basket of crude oil in December is around $90 per barrel, with the average price for the current financial year at almost $80, up 13 per cent from the 2008-09 average of $69.76. The last increase in diesel, LPG and kerosene prices in June was based on an average of $76 a barrel.