PSU oil marketing cos demand choice in price fixing

While signing the Annual Performance Memorandum with the Petroleum Ministry, IOC—the country’s largest oil retailing firm—has vociferously pleaded that state-owned oil companies should be granted freedom to fix retail selling price of petrol, diesel, domestic LPG and kerosene, ministry sources told Deccan Herald. Currently, the government is not allowing IOC as well as its two sister state-owned oil firms—Hindustan Petroleum Corporation Limited (HPCL) and the Bharat Petroleum Corporation Limited (BPCL)— to raise fuel prices in line with costs to keep inflation under check.
As per the latest data these three state-owned firms are currently losing Rs 3.63 per litre on petrol and Rs 2.33 a litre on diesel. They are making a loss of Rs 158.55 per 14.2-kg LPG cylinder and Rs 17.15 on every litre of kerosene sold through the public distribution system.

Revenue loss
At current global oil prices, IOC, BPCL and HPCL will see a revenue loss of Rs 41,440 crore.  
In 2008-09 all the three state-owned marketing firms incurred a revenue loss of Rs 1,03,292 crore on fuel sales. Of this 68 per cent was met by the government through issue of oil bonds.

State-owned oil and gas upstream firms like ONGC, GAIL India and Oil India Limited bore the burden to the tune of Rs 32, 942.9 crores by way of discounts on crude and oil and LPG they sold to the three state-owned oil retailers. The remaining portion was met by oil subsidies granted by the government and marginal hike in retail prices of petrol and diesel allowed by the government in June last year.  
Even as the petroleum ministry is understood to be inclined to allow state-owned oil marketing firms to fix the retail prices of at least two auto fuels—petrol and diesel—as per market forces, the government is yet to take a final call on this. The ministry is understood to be of the view that three state-owned oil marketing firms should be given the freedom to fix rates of petrol and diesel till the time crude oil stays below $75 a barrel.

Political issue
If the global crude oil price crosses this mark, the government will step in to determine the retail prices of two auto fuels.Once the crude oil price shoots up beyond $75 per barrel the government may provide subsidy to keep the retail prices of petrol and diesel within “tolerable” limit so that consumers are not hit by “runaway” prices.
Even the planning commission in its Integrated Energy Policy has recommended that pricing of petroleum products should be gradually adjusted to trade parity prices hinting that it should be at par with global oil prices.
But considering political sensitivity over the pricing of mass-consumed petroleum products and its cascading effect on the economy the government is adopting a cautious approach on the issue.

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