Fuel price hike on the anvil as Moily writes to PM, FM

Making a case for substantial increasMaking a case for substantial increase in price of sensitive petroleum products, petroleum minister M Veerappa Moily has written to Prime Minister Manmohan Singh and finance minister P Chidambaram ringing alarm bells on the revenue losses of oil marketing companies. 

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 $20 billion.

 

The oil marketing companies are preparing for an increase in diesel, petrol and LPG prices. Though the hike was expected to take place from September 1, the government is likely to wait for the Parliament session to get over next week.

The current under recovery figures that Moily projected is 13% higher than the previous year’s Rs 1,61,309 crore. He is also targeting to cut in forex outflow of $7 billion through reduction in imports, conservation efforts, reduction in LPG demand and ethanol blending programme, another $8.47 billion would be saved through rupee payments for Iran imports.  Moreover, an inflow of $3.75 billion is expected through external commercial borrowings by oil companies during the financial year.   

 

“If we consider the average price of Indian crude basket at $110 a barrel and the average exchange rate at Rs 66 a dollar for the balance financial year, the under recovery of oil marketing companies will increase to Rs 1,68,000 crore. If international prices increase to $115 a barrel, the under recovery 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 can be met through upstream assistance, remaining Rs 97,500 crore should be met through budgetary support from the government or “appropriate 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 under recovery on diesel now stands at Rs 6,204 crore on sale of diesel itself. “At the current level, it will take at least 20 months to eliminate the under-recovery on diesel only,” Moily mentioned.

 

Currently, the under-recoveries on diesel, kerosene and LPG stood at Rs 10.22 a litre (even after seven price increases since January), Rs 33.54 a litre and Rs 412 a cylinder, respectively and is expected to rise further for the first fortnight of September.

 

Among the forex outgo saving measures, Moily proposes to save $1.76 billion through restricting the imports by PSUs to the 2012-13 level of 103.7 million tonne, rather than the projected 106 MT.

The roadmap targets 3% savings in consumption of POL products through conservation campaigns, which would save another $2.5 billion. The reduction in LPG demand would save $258.3 million, while 5% mandatory ethanol blending programme may save $ 340 million.

 

On the other hand, another major savings is through imports of 11 MT of crude from Iran, which is pegged at $8.47 billion.