High crude oil prices may delay diesel decontrol

Diesel decontrol is unlikely to happen in the near future, given the high crude oil prices. The move would lead to rise in retail prices that will push up the already high inflation rate, Petroleum Secretary S Sundareshan said today.

The government is not considering freeing diesel prices yet, as “diesel price deregulation will mean an increase in prices, which is not fair (under present circumstances),” he said at the Economic Editors’ Conference here. At current levels, diesel requires an increase of Rs 2.87 a litre.

On June 25, the government had freed prices of petrol, that led to an increases of Rs 3.50 a litre. Since then, the oil companies have taken two increase amounting to Re 1 per litre in tune with international rates. Petrol currently costs Rs 52.55 a litre in Delhi.

The same day, diesel prices were also raised by Rs 2 per litre, and it was stated that they would be gradually freed. Decontrol of diesel would have been particularly beneficial for Reliance Industries Ltd, the country’s biggest private fuel producer, since diesel is its mainstay. Diesel currently costs Rs 37.71 a litre in Delhi.

“The June decision was taken when crude oil was at $73-74 a barrel. Since then, it has risen to $82-83 a barrel and it will be unfair to think that diesel prices will be market-determined at these levels,” Sundareshan said.

Diesel price deregulation is “not possible with the current prices ... Diesel deregulation at this juncture will lead to price increase and it is unreasonable to expect it at this juncture,” he said.

In June, the government had also raised the domestic LPG price by Rs 35 per 14.2-kg cylinder and kerosene rates by Rs 3 a litre. Despite these increases, state fuel retailers currently lose Rs 16 on the sale of every litre of kerosene and Rs 188 per LPG cylinder.

Sundareshan said state-run oil marketers — IOC, BPCL and HPCL — lost Rs 31,367 crore in revenues during the April-September period on sale of diesel, domestic LPG and kerosene below cost. This includes Rs 2,227 crore oil firms lost on selling petrol below cost till June 25.

Of this revenue loss, upstream oil firms, Oil and Natural Gas Corporation, GAIL India and Oil India will chip in Rs 10,456 crore and about Rs 10,000 crore would come from the government by way of cash compensation.