Govt considers Kelkal panel report;diesel, LPG rates may go up

Diesel, kerosene and cooking gas LPG prices may be hiked soon as the government considers Vijay Kelkar Committee recommendations on cutting fiscal deficit.

The Kelkar Committee, which was appointed by Finance Ministry to suggest a roadmap for fiscal consolidation, has suggested immediate hike in fuel prices and complete deregulation of diesel prices by start of 2014-15 fiscal. It also suggested raising kerosene and LPG rates.

"That (Vijay Kelkar committee recommendation on deregulating diesel and raising kerosene and LPG rates) is a proposal. It is still at proposal stage. The (Petroleum) Ministry is only processing that report and we are yet to take a decision," Oil Minister M Veerappa Moily told reporters here.

The panel had in September recommended "immediate increase in Petroleum prices. This should be continued in the next year in such a way that the prices of diesel are fully deregulated by the start of 2014-15. The prices of kerosene and LPG also should be revised regularly to keep the subsidy levels at affordable levels."

Price of diesel, which currently costs Rs 47.15 per litre in Delhi, was last revised on September 14 when it was hiked by a steep Rs 5.63 per litre. Kerosene rates have not changed since June 2011 and it currently costs Rs 14.79 per litre in Delhi.

State-owned oil companies currently sell diesel at a loss of Rs 10.16 per litre, kerosene at Rs 32.17 a litre and LPG at Rs 490.50 per 14.2-kg cylinder. Moily said the government was also considering raising the cap on supply of subsidised cooking gas (LPG) cylinders to 9 per household in a year from current limit of six.

The hike in supply of subsidised cylinders would lead to an additional Rs 9,000 crore of subsidy payout over and above the Rs 155,313 crore that the government is currently having to deal with on sale of diesel, LPG and kerosene at below market price.

Since the Finance Ministry is unwilling to foot this, the only option left is to raise fuel prices, officials said adding a hike in diesel, kerosene and LPG rates would be taken to the Cabinet. The Kelkar committee had recommended an immediate hike in price of diesel by Rs 4 per litre, of kerosene by Rs 2 a litre and of LPG by Rs 50 per cylinder.

"By the year 2014-15, the fiscal benefit of the price increase will consist of a first order reduction in expenditure on subsidies, and a second order effect from the enhanced profits of upstream oil marketing companies," the Kelkar Committee stated noting that subsidy on diesel had been a major contributor to fiscal slippage in recent years.

Although diesel prices have been deregulated in principle, prices are still being administered by the Government. "At this stage, even if the diesel prices are not fully deregulated there is an urgent need for an immediate price increase. The price adjustment should be done in small successive steps and the Government should move to complete deregulation of diesel as early as possible," it stated.

It wanted half of the over Rs 10 per liter loss on diesel sales to be eliminated in current year itself and the remaining in the next fiscal. On LPG, it wanted cutting of current losses by a quarter this year and remaining over the next two years. For kerosene, it recommended reduction in subsidy by one-third by 2014-15.

Subsidised LPG costs Rs 410.50 per 14.2-kg cylinder and any household requirement beyond current cap of 6 cylinders is to be bought at near market price of Rs 895.50 per bottle.

Officials said state-owned Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp together in the first six months of current fiscal lost Rs 85,586 crore on selling diesel, domestic LPG and kerosene at government-controlled rates which are way below their cost. Of this, the bulk Rs 52,711 crore was on account of losses on diesel.

The government has promised a cash support of Rs 30,000 crore to cover a part of the Rs 85,586 crore revenue loss on fuel sales during April-September. Upstream oil firms like ONGC have chipped in Rs 30,170 crore, leaving a balance Rs 25,417 crore uncovered, they said.

The Oil Ministry, they said, wants Finance Ministry to make up for this shortfall as well as the revenue deficit expected in the remaining six months of current fiscal.

State-owned fuel retailers are likely to end the fiscal with a revenue loss of over Rs 155,313 crore on sale of diesel, domestic cooking gas (LPG) and kerosene at government- controlled rates that are way lower than cost.

Of this, close to Rs 60,000 crore will come from upstream companies Oil and Natural Gas Corp (ONGC), Oil India Ltd and GAIL India. For the rest, the Oil Ministry has asked the Finance Ministry to give cash subsidy.

Upstream firms ONGC, OIL and GAIL share a part of the revenues that retailers lose on diesel and cooking fuel sales. Their share to begin with was 33 per cent of the revenue loss on fuel sales but has slowly risen to 40 per cent.

The source said upstream firms had in 2011-12 made good 40 per cent of the Rs 138,541 crore revenue that Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp lost on fuel sales.

Their Rs 55,000 crore contribution that year compared to Rs 30,297 crore in 2010-11 and Rs 14,430 crore in 2009-10. In 2011-12, the government gave out Rs 83,500 crore by way of cash subsidy, up from Rs 41,000 crore in 2010-11 and Rs 26,000 crore in 2009-10, he added.