Petrol price raised by Rs 2.35/l, Moily makes case for more

Writes to PM, FM highlighting OMC's uderrecoveries; details a master plan to cut forex outgo

Even as petrol price was raised by Rs 2.35 a litre and diesel got its monthly dose of 50 paise increase per litre on Saturday, the petroleum ministry is batting for a substantial rise in diesel, domestic LPG and kerosene prices.

Making a case for a major increase in prices of sensitive petroleum products, Petroleum Minister M Veerappa Moily has written to Prime Minister Manmohan Singh and Finance Minister P Chidambaram, highlighting the revenue losses of oil marketing companies (OMCs).

Citing a revenue loss figure of Rs 1,81,000 crore during the current financial year, Moily has also drawn a master plan to cut the foreign exchange outflow by about $20 billion.

The OMCs are preparing for an increase in diesel, petrol and LPG prices. Though the hike was expected to be effected from September 1, the government is likely to wait for the current Parliament session to end over next week. The current underrecovery figures that Moily has projected are 13 per cent higher than the previous year’s Rs 1,61,309 crore. He also aims to lower forex outflow by $7 billion through reduction in imports, conservation efforts, reduction in LPG demand and the ethanol-blending programme — another $8.47 billion would be saved through rupee payments for imports from Iran. Also, an inflow of $3.75 billion is expected through external commercial borrowings by oil companies during the financial year.

MOILY’S ROAD MAP

Plan to save on foreign exchange outgo under various heads

• $1.76 bn
  By restricting imports by PSUs to the 2012-13 level of 103.7 mt
• $2.5 bn
  3% saving in petroleum product consumption via conservation campaigns
• $258.3 mn
  Through reduction in demand
  for domestic cooking gas
• $340 mn
  Under the ethanol-blending programme
• $8.47 bn
  Imports from Iran and payment in rupees
• $3.75 bn
  Inflows as external commercial borrowings by oil companies

“If we consider the average price of Indian crude oil basket at $110 a barrel and the average exchange rate at Rs 66 for a dollar over the rest of the financial year, the underrecovery of OMCs will increase to Rs 1,68,000 crore. If international prices increase to $115 a barrel, the underrecovery will reach around Rs 1,81,000 crore,” Moily warned in his letter.

The letter highlighted that while Rs 70,500 crore of the expected amount could be met through upstream assistance, the remaining Rs 97,500 crore should be met through Budgetary support from the government or “appropriate increase in the prices of diesel, domestic LPG and kerosene”. Even after phase-wise decontrol measures were introduced in January with a 50 paise monthly increase, the monthly underrecovery now stands at Rs 6,204 crore on sale of diesel alone. “At the current level, it will take at least 20 months to eliminate the underrecovery on diesel,” Moily mentioned.

At present, the underrecoveries on diesel, kerosene and LPG stand at Rs 12.12 a litre (even after seven price increases since January), Rs 36.83 a litre and Rs 470 a cylinder, respectively.

Among the measures to save forex outgo, Moily proposes to save $1.76 billion through restricting the imports by PSUs to the 2012-13 level of 103.7 million tonne, against the projected 106 mt. The road map targets three per cent savings in consumption of petroleum products through conservation campaigns. That would save another $2.5 billion. The reduction in LPG demand would save $258.3 million, while a mandatory five-per-cent ethanol blending might save $ 340 million.

Another major saving, of $8.47 billion, is expected through import of 11 mt crude oil from Iran for which payments would be made in rupee.