Sticking to a strategy of not making any dent to its aam admi (common man) plank, the Congress-led United Progressive Alliance (UPA) government on Thursday decided not to hike retail prices of petrol and diesel but approved a package to partly compensate state-owned oil marketing companies hit by ongoing surge in international crude oil prices.

The decision to this effect was taken by the Union Cabinet meeting chaired by Prime Minister Manmohan Singh here.

While taking stock of the oil price scenario the Cabinet decided on a package including issue of oil bonds and extension of oil subsidy to offset the impact of surging international crude oil prices. “We have kept our promise of not raising prices of sensitive petroleum products,” Petroleum Minister Murli Deora told mediapersons after the Cabinet meeting.

Political analysts say that with the cloud of probable mid-term poll hanging on the political horizon, the United Progressive Alliance is refraining from any hike in prices of four petroleum products of mass consumption — petrol, diesel, LPG and kerosene.

Package details
Giving details of the package Deora said due to the mismatch between the retail prices of four sensitive petroleum products and the global crude oil prices state-owned oil companies are facing financial under-recoveries of nearly Rs 54,935 crores in the current fiscal 2007-08.

To restore the financial health of the companies the Cabinet as per the principle of equitable burden sharing among the different stakeholders and in line with a similar exercise undertaken last year decided that 42.7%  of the total under-recoveries would be borne by the government in the form of oil bonds.

LPG subsidy
In figurative terms the oil bonds proposed to be issued to the oil companies amount to Rs 23,457.24 crores.
Besides oil bonds, the Cabinet also decided to extend budgetary subsidy on domestic LPG and PDS kerosene for three more years from April 1, this year, Deora said. The Cabinet also decided that one third of the under recoveries would be shared by the upstream oil PSUs like the ONGC, Oil India Limited and GAIL in the form of discounts on crude oil and products. The remaining amount would be borne by three state-owned oil companies — IOC, BPCL and HPCL.

The Indian basket of crude oil prices has risen by nearly 40 per cent since February this year when petrol and diesel prices were cut by Rs 2 and Rs 1 per litre respectively.

Currently, petrol is being sold at a loss of Rs 2.79 per litre while diesel is priced Rs 4.65 a litre below the cost. Oil companies suffered a loss of Rs 15.50 on sale of every litre of kerosene and Rs 178.15 on sale of every LPG cylinder.