A hike in the price of petrol is imminent. It appeared on Monday that the government is waiting for the last phase of the UP and Goa Assembly elections to be over before giving its nod to the oil marketing companies to hike the price—a clear indication that despite the deregulation of the petrol pricing nearly two years ago, the government continues to exercise control over price revision.  

There were strong indications on Monday that the government could allow the oil marketing companies to hike petrol price by Rs 4 per litre. As such the companies are free to revise retail price every fortnight by adjusting it to previous fortnight’s average price of crude imports (Indian basket) by the country. The cost of crude imports not only includes the crude price but also the rupee exchange rate. 

The government has cited the upward movement of crude price over the last ten days as it started preparing the ground for a hike, which might happen just around the time the last phase of the current round of assembly elections gets over later this week—on March 3.
The petrol price was last increased—and also decreased—in November last year. Since then, the price for Indian basket of crude imports has remained steady, but there has been sharp increase in the cost of imports in view of the depreciation of Indian rupee vis-à-vis the US dollar. However, the oil companies had not resorted to upward revision of the retail price. The rupee has since gained ground against the American dollar.

This is not the first time that the government appeared to have prevailed upon the oil marketing companies to hold the price level during an important election season. Ten months ago, on May 15, 2011, the petrol price was hiked by Rs 5 per litre, after a gap of three months, but within 48 hours of the last phase of polling for the assembly elections in West Bengal, Tamil Nadu, Kerala and Assam.

Now, though the oil firms have a reason to seek a hike—the price for the Indian basket of crude oil ruled at US$ 123.11 last Friday as against the average of US$ 114.64 for the first fortnight of this month. The marketing firms have reported that they were incurring losses of around Rs 11-12 per litre on diesel and Rs 378 on LPG cylinder—the three products the pricing of which are still regulated by the government.

An official of a leading oil company told Deccan Herald that the marketing companies were suffering losses in the oil trade and the petrol rates need to be revised sooner than later.
He said that the rise could be steep in the coming months and may not be at one go—which means one should brace up for a hike every fortnight after the elections are over.

Chairman and managing director of Bharat Petroleum Corporation Limited R K Singh said the rising under recovery has become a matter of concern. Speaking to a private TV channel, Singh said that oil companies are in constant touch with the government for a way out. “We are hopeful that if the prices continue to remain the way it is today, we will have no option but to increase it. Otherwise, the government will have to compensate for petrol as well, which we don't want,” he said.

 “The fact of the matter is we being a government company; whatever we do that has to be in consultation with the government,” Singh said, but stopped short of linking the price hike to elections. He was hopeful the government will consider raising prices of diesel, may be after the budget as the under recovery was huge and simply “unsustainable”.

* Petrol prices are likely to increase from March 3
* OMCs claim that they are incurring losses of around Rs 11-12 per litre on diesel, Rs 378 on LPG cylinder
* OMCs have not been able to raise petrol prices despite it being a deregulated commodity
* Rising crude prices in recent months have also been a matter of concern