The hike in auto fuel prices will come into effect from midnight tonight.

“With the ongoing rise in international oil prices adversely affecting the financial health of the public sector oil marketing firms there is no other alternative than to hike the prices of petrol and diesel,” the Petroleum Minister Murli Deora told newspersons at a hurriedly convened press conference.

“Nevertheless having regard to the need to provide relief to the poor and the middle classes the government decided not to increase the retail prices of kerosene supplied through Public Distribution System (PDS) and domestic LPG,” the Minister said.

Significantly the rise in auto fuel prices— widely being viewed as an unpopular decision considering the “Aam Admi” plank of the Congress-led UPA government-- has come few days ahead of the presentation of the Budget 2009-10.

By not raising the prices of PDS kerosene and domestic LPG, the government would bear a loss of over Rs 30,000 crore in this financial year by subsidizing these two petroleum products, Deora said.

Provisions would be made in the budget, to be presented on July 6, to cover the loss on account of LPG and kerosene, he indicated.

The decision to increase the retail prices of two auto fuel was taken after Deora met the Prime Minister Manmohan Singh earlier today.

Explaining the decision to hike fuel prices Deora said in view of the increase in the price of crude oil by 75 per cent, the under recoveries had reached a “level where it has become inevitable to revisit the prices.”

The global crude oil price has risen from 40 dollars per barrel in December last year to 70 dollars per barrel now, he said. 

“When prices had declined to 40 dollars per barrel, the government responded by reducing-- in two steps—the price of petrol by Rs 10 a litre and the price of diesel by Rs 4 a litre,” Deora noted.

While terming the current hike in two fuel prices “marginal” the Petroleum Secretary R S Pandey said against the under recovery of approximately Rs 6 per litre in petrol, the price has been hiked by Rs 4 per litre. 

Similarly, against the under recovery of Rs 3.62 per litre in diesel, the price has been increased by Rs 2 per litre, he claimed.

Currently the oil marketing firms are incurring a loss of Rs 15.26 per litre on kerosene and Rs 92.96 per 14.2 kg of LPG cylinder.

The hike in auto fuel prices have come at such a juncture of time when Petroleum Ministry as part of strategy to inject reforms in the oil sector is pressing for deregulating the pricing of two auto fuels thus giving a free hand to state-owned oil marketing firms to fix price at par with global prices.