Petro-price hike to cover oil deficit likely

The Government-controlled Oil Coordination Committee fixes prices for petrol, diesel, jet fuel, kerosene and liquefied petroleum gas (LPG). Our guess is that the Petroleum Minister will have to plump for a hike in diesel prices.

The minister would, of course, prefer to raise prices of petro-products without pinching the customer. The petroleum ministry has had the routine round of discussions with North Block and sources in Government say a mid-term correction in excise and customs duties could not be ruled out. A 6 per cent cut in excise duty would not hurt revenue collections, especially in a year when they are expected to surpass collection targets. A tax cut could even out the increase in the ex-storage point (price before duties are added on) of petrol, diesel, cooking gas, or kerosene.

The reforms schedule demands that the subsidy on LPG be brought down to 15 per cent this year from 125 per cent, necessitating an almost 50 per cent hike in cooking prices. "That will have to be a political decision," said a source involved in the pricing process, implying that it will be too tough a decision for a minister to take.

Jet fuel or aviation turbine fuel prices are scheduled to be freed this year and the Petroleum Minister has committed himself to keeping to that schedule. Prices of jet fuel have gone up by nearly 17 per cent in the West Asian market from $208 a tonne in April to $243 a tonne earlier this month. A rumour in the industry grapevine was that the Union Government would opt for a hike in the price of petrol, because petrol prices pinch a vote bank that never protests. "The issue," say industry sources, "is not really pegging petroleum product prices at home with global rates."

The issue, they say was to stop the oil pool account deficit from reaching unmanageable levels. The oil pool deficit was Rs 7,500 crore at the end of last month and should logically be close to Rs 8,000 crore at the end of this month. It could be close to Rs 15,000 crore at the end of the year. Petrol prices contribute to the oil pool deficit, but contribute more to the revenue earnings of the Union Government. Gasoline is the most heavily taxed petroleum product in India, as in the rest of the world.

The petroleum product that hurts the oil pool account the most is diesel. Diesel prices have been at "import-parity" levels since September 1997. Since diesel prices are not accounted for in the oil pool, every rupee change in the global price of diesel is a drain on it.

Diesel prices at home are already Rs 2.12 a litre cheaper than in the global market and 3.8 million kilo litres of diesel is consumed in the country every month. The oil pool account should logically be losing close to Rs 500 crore a month because the diesel consumer gets a hidden subsidy.

The spinning wheel thus stops at diesel. Raising diesel prices is the answer to the petroleum ministry woes and that is the fuel that should logically get dearer now.