Hike in petrol, diesel rates looks imminent

An increase in the rates of petrol and, possibly, diesel looks imminent with a panel of ministers set to meet tomorrow for deciding on the fuel pricing policy.

An Empowered Group of Ministers (EGoM) may go with oil minister Murli Deora's proposal to free petrol prices from government control, which would trigger a hike of Rs 3.73 a litre, official sources said here.

There was near-unanimity in the eight-member EGoM on bringing about market-linked prices for petrol, a fuel generally used by the well-off, but it remains to be seen if the Rs 3.73 per litre hike would come into effect immediately or in two equal installments.

However, sources said that freeing diesel prices was out of the question because the fuel was used by the transport and agriculture sector and, therefore, had close links with the inflation rate.

Railway minister (TMC leader) Mamata Banerjee and Agriculture Minister (NCP supremo) Sharad Pawar are said to be against decontrolling diesel rates, and the EGoM may settle for a nominal hike instead.

Diesel prices may be raised by Rs 2 per litre instead of the Rs 3.80 hike needed to make it market-linked, they said.

Also on the cards is a Rs 25 per cylinder hike in domestic LPG rates and a marginal increase in kerosene prices, but these would have to pass the muster of Banerjee and Pawar.

The two party leaders, who provide crucial support to the UPA government, had skipped the first meeting of the EGoM on June 7. This led to the panel head, finance minister Pranab Mukherjee, postponing the decision.

Sources said that DMK leader and fertiliser minister MK Alagiri have agreed to an increase in auto fuel prices.

With global crude oil trading at below $80 a barrel, Deora is seeing this as the last opportunity to usher in reforms in the sector which, otherwise, would need Rs 74,300 crore in doles to bridge the gap between retail prices and import costs.

Freeing of petrol prices would reduce the Rs 74,300-crore deficit by about Rs 5,000 crore. A one rupee per litre hike in diesel prices would cut losses by Rs 3,800-4,000 crore.

Deora had, on more than one occasion, briefed the prime minister Manmohan Singh and Mukherjee on the crisis that would befall oil PSUs if no decision was taken in this regard.

But the UPA government seems wary of freeing fuel prices as such a move can add to the already-high inflation.

In May, WPI-based inflation provisionally entered double digits at 10.16%.

State oil firms currently lose about Rs 215 crore per day on selling fuel below the imported cost. At present, petrol is being sold at Rs 3.73 a litre below its cost, diesel at a loss of Rs 3.80 per litre, kerosene at Rs 18.82 a litre and domestic LPG at a discount of Rs 261.90 on every 14.2-kg cylinder.