Govt broaches fuel price hike with allies
The Union Cabinet is likely to discuss on Thursday a Petroleum Ministry proposal for freeing petrol prices from government control and a moderate increase in diesel, cooking gas and kerosene rates, ahead of which Oil Minister Murli Deora held consultations with key allies DMK and Trinamool Congress on the subject.
Deora met A Raja, Telecom Minister and senior leader of UPA's key ally, DMK, this morning and spoke over phone to Trinamool Congress leader and Railway Minister Mamata Banerjee explaining the "precarious" situation that PSU oil firms would find themselves in, if fuel prices were not hiked.
Sources said that both Raja as well as Banerjee were non -committal on the stand that their parties may take if the proposal of freeing petrol prices - that would lead to a price increase of Rs 4.72 a litre - comes before Cabinet tomorrow.
Already, opposition from key allies has seen Deora drop the proposal on freeing diesel prices that would have resulted in rates going up by Rs 2.33 a litre. However, there is now a move to hike diesel rates by at least Re one a litre.
Deora may, however, bargain for an increase in LPG and kerosene rates although it would not be in the range of the steep Rs 100 per cylinder and Rs 6 a litre hike, respectively, suggested by the Kirit Parikh panel on fuel pricing reforms.
Sources said he may bargain for half of the increases suggested by the panel, but may settle at Rs 25 per cylinder hike in LPG rates and Re one a litre raise in kerosene prices.
The Congress party core group, which includes UPA Chairperson Sonia Gandhi, will meet to vet the proposal before it goes to the Cabinet.
Deora refused to say what his ministry may propose to the Cabinet. "At the time of presentation of the Kirit Parikh Committee report (last week), I had said that we will process and present our view on it to the Cabinet in one week. We are ready (with comments on the report) and will submit it to the Cabinet..."
He refused to elaborate but gave enough hints that the ministry's view would incorporate the Congress party's stand that may evolve at the core group meeting.
The experts group, headed by former Planning Commission member Kirit Parikh, recommended deregulating of petrol and diesel prices, while raising kerosene and domestic LPG rates by Rs 6 per litre and Rs 100 per cylinder, respectively.
State-owned Indian Oil, Bharat Petroleum and Hindustan Petroleum sell fuel below cost on the orders of the government and expect a revenue loss of Rs 46,030 crore on that account this year. Of this, the government was meeting only Rs 12,000 crore, Deora explained to Raja and Banerjee.
Sources said Raja is believed to have told Deora that a position on the proposal will be taken by his party's leader M Karunanidhi.
Petrol is currently sold at a loss of Rs 4.72 a litre, diesel at Rs 2.33 per litre, kerosene at Rs 18.06 per litre and domestic LPG at a discount of Rs 287.59 per cylinder.
In case the government went for only marginal price hikes, the Cabinet will also have to decide on how the remainder of the revenue loss would be met.
At present, the government does not allow state-running fuel retailers to fix petrol, diesel, kerosene and LPG prices in line with international cost, resulting in huge revenue losses for the companies and subsidy burden on government.
The revenue loss on petrol and diesel is met by upstream firms like ONGC. Of the Rs 31,574-crore revenue loss expected on LPG and kerosene, the government has so far given only Rs 12,000 crore.
Implementing expert group suggestions of a hike in prices of cooking fuels coupled with reduction in allocation of kerosene under PDS by 20 per cent would reduce revenue loss by about Rs 16,454 crore, whereas, the auto-fuel deregulation would avert Rs 13,997 crore of revenue loss.
The government had in September last year constituted an expert committee headed by Kirit Parikh to suggest reforms in pricing of oil-products.
This is the third committee on the subject. Panels headed by C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, made recommendations in 2006 followed by Planning Commission member B K Chaturvedi in 2008.
