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Fuel prices up as Govt. moves towards market determined price regime

Saturday, June 26, 2010 10:35:04 AM, Agencies

New Delhi: In a major decision to bring petroleum products in line with market rates, the government today freed petrol from all pricing controls and hiked diesel prices by Rs two a litre, Oil Secretary S Sundareshan announced after the meeting of the Empowered Group of Ministers.


Finance Minister Pranab Mukherjee said price control had become unbearable for his Ministry to fund.

The government would retain the right to “suitably intervene” in pricing of both fuels in case of “a high rise and volatility in international oil prices”, said a Petroleum Ministry release.

The EGoM also approved a lower-than-recommended raise in cooking gas LPG and kerosene used by low income and poor families respectively with a sweetener to continue the PDS Kerosene and Domestic LPG Subsidy Scheme and the Freight Subsidy (For Far-flung Areas) Scheme by two years until March 2014.

As a result, the price of petrol will go up by Rs 3.50 per litre, diesel by Rs 2, kerosene Rs 3 per litre and LPG Rs 35 per cylinder from midnight Friday.

“In light of budgetary constraints and the growing imperative for fiscal consolidation, and the need for allocating more funds to social sector schemes for the common man, the government has decided that pricing of petrol and diesel, both at refinery gate and at the retail level, will be market-determined,” said a government statement.

“However, in respect of diesel, the initial increase in retail price will be Rs 2 per litre at Delhi.

Further increases will be made by the OMCs in consultation with the Petroleum Ministry,” it said.

The attempt is to bring down the government’s subsidy bill on kerosene and LPG, as also relieve the state-run oil marketing companies from incurring losses for selling these and petrol and diesel below their economic pricing.

Even after these steps, the government and the OMCs are expected to bear an estimated under-recovery burden of about Rs 53,000 crore in fiscal 2010-11, down from Rs 72,000 crore estimated at the start of fiscal year in April.

The government’s fiscal deficit, now projected at 5.5 per cent of the 2010-11 budget would shrink, freeing up capital for other social sector schemes. But the hike, especially that of diesel, would trigger all-round increase in distribution costs, further stoking inflation that is currently in double digits.

While ally Trinamool Congress leader Mamata Banerjee stayed away from the EGoM meeting, DMK leader Alagiri opposed the hike. Petroleum Minister Murli Deora jostled for the increase, saying OMCs would turn sick if no decision was taken.

The Ministry statement said that market rates for petrol and diesel would allow private firms Reliance Industries and Essar Oil — who shut their outlets in 2008 after government refused to pump up retail prices — to reopen retail sales.

“Market determined pricing is expected to attract higher investments in the fuel retail sector, and by spurring market competition, encourage OMCs to reduce costs, improve efficiency and service standards,” it said.














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