Govt mulls deregulation of auto fuel prices

Move is to help state-owned oil firms minimise their losses

An indication to this effect was given by the Petroleum Minister Murli Deora while taking charge of the Petroleum Ministry for the second consecutive term here on Friday.

“The ministry is deliberating on the issue of deregulation. The ministry’s view on deregulating fuel prices will be put before the Union Cabinet,” he said. It could be done in six weeks.

It is learnt that in view of current phenomenon of softening of the international crude oil prices, the Petroleum Ministry is of the view that it is the right time to free petrol and diesel prices from government control. The government feels that prices of two major auto fuels — petrol and diesel — should be determined on actual international crude oil prices.

The ministry is likely to give freedom to fix fuel prices to three state-owned oil marketing firms like Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum till the time crude oil stays below $75  a barrel.

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.

This is not the first time the government is contemplating  deregulating the fuel prices. In 2002 the NDA government had removed the administrative pricing mechanism (APM), under which the government used to determine the prices of petroleum products through a complex price fixation procedure.

Though petroleum products like petrol, diesel and aviation jet fuel were taken out of the APM regime, the government after sometime again resorted to the system when global crude oil prices started rising at a faster pace leading to pressure on general price line in the domestic market. The idea of allowing the state-owned oil firms to determine prices of petrol and diesel on the basis of international prices was also floated even in the previous tenure of the UPA government.

The argument was market-determined pricing system would help the state-owned oil firms to minimise their losses. But each time this suggestion was floated by the oil PSUs the government could not muster political courage to implement it.

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