NEW DELHI: In what could give a reprieve to consumers who have been fearing another hike in petrol price, the government has decided to put the proposal in abeyance. According to official sources, oil marketing companies (OMCs) that have pitched for a petrol price hike will have to wait until a decision is taken on subsidy reduction on all regulated petroleum products such as diesel, LPG and kerosene.
The government reckons that since a hike in the price of petrol would anyway be opposed by allies like the Trinamool Congress (TC) apart from the Opposition, it would be wiser to face them squarely and use the opportunity to revamp the entire oil subsidy regime. When the price of petrol was last hiked in November, the TC had threatened to quit the ruling coalition.
In the interim, OMCs IndianOil, Hindustan Petroleum and Bharat Petroleum may resort to supply cuts to stem losses on petrol. Jointly, these three companies are losing R48 crore a day solely on selling petrol below cost.
Government managers have been saying that the plausibility of fiscal consolidation envisaged in Budget 2012-13 hinged heavily on a likely correction in prices of these fuels early this fiscal. Prime Minister’s Economic Advisory Council chairman C Rangarajan has said that measures under consideration included total decontrol of diesel prices or some kind of arrangement under which it is progressively hiked, even while providing a cash subsidy directly to farmers.
Sources said the government might risk supply cuts of the ‘rich man’s fuel’ that could drive home the point that price adjustments in sync with global markets is the only way to salvage the bleeding oil companies. Since the last price revision, the import parity price of petrol has gone up by 22% to $133 a barrel, warranting a price increase. A 60 paise gain in the rupee against the dollar in this period is too small to give any relief to oil companies.
Oil ministry sources said the government is convinced that a piecemeal approach to lower the oil subsidy will not work. “Oil marketing companies, therefore, may not be allowed to raise petrol price immediately. It will take a little longer to find a comprehensive solution,” said an official. The ministry will send its suggestions to reduce subsidy on all petroleum products to finance minister Pranab Mukherjee with a request to convene a meeting of the group of ministers.
Mukherjee, who had vowed to reduce the total subsidy on oil, food and fertilisers to below 2% in the 2012-13 fiscal, told reporters last month that the government was firm on deregulating the price of diesel without much delay. Cutting down the subsidy on diesel is crucial as retailers make most of their losses on this fuel, 58% of the Rs 97,000 crore they lost in the first three quarters of last fiscal.
Mukherjee also told financial reporters that the government will not mind taking mid-course corrections if the subsidy outgo exceeds his estimate. He also said that once the Finance Bill, 2012, is passed, policymakers at the Centre led by Prime Minister Manmohan Singh would hold talks with state governments and various political parties for a consensus on subsidy reforms.
OMCs have meanwhile suggested that they should be compensated for the losses they incur on petrol as they are not allowed to raise the price of the commodity ‘decontrolled’ in June 2010. IOC chairman RS Butola on Monday said that if the company does not earn revenues from fuel sales, it would not be able to buy crude oil and if it is unable to buy crude, there will be fuel supply disruptions.