New Delhi, November 2
Fuel prices are likely to further rise, with Petroleum Minister S Jaipal Reddy today saying he had asked for a meeting of the Empowered Group of Ministers (EGoM) to decide on revising rates of diesel, cooking gas and kerosene.

There is a strong possibility of petrol prices going up very soon as PSU oil companies, IOC, BPCL and HPCL are considering another hike of Rs 1.85 per litre. Petrol is deregulated and oil companies can take a call on the price hike, but since a majority of them are government-owned, informal consultations are held.

Household budgets already reeling under the impact of double-digit inflation and rising EMIs on home and car loans will have to brace up for transportation and food costs could further go up.

“I have asked for a meeting of the Empowered Group of Ministers (EGoM),” Reddy told reporters after a meeting with Finance Minister Pranab Mukherjee, who heads the EGoM. State-owned oil firms are currently losing Rs 9.27 per litre diesel, Rs 26.94 per litre kerosene sold through the Public Distribution System (PDS) and Rs 260.50 per LPG cylinder, losing Rs 333 crore a day.

Reddy said the EGoM meeting would take place before the winter session of Parliament, beginning November 22, and added that a decision on raising prices may “not be easy”. Reddy said his ministry would push for raising prices of all three regulated products - diesel, LPG and kerosene.

On oil companies pressing for a hike in petrol prices, he said PSUs were fully empowered to take a view, keeping in mind rising crude oil prices and depreciating rupee.

The last petrol hike was Rs 3.14 per litre on September 16, when the rupee was sitting at about 48 to a US dollar. The local currency has depreciated further and is now trading at over 49 and recently, it had even touched 50. Crude oil is hovering at around USD 108 per barrel in international markets. At the current exchange rate, petrol price of Rs 66.84 per litre in Delhi corresponds to about USD 102 per barrel equivalent of crude oil price.

Increasing the prices of diesel, LPG and kerosene is politically sensitive and inflationary and the prices are not hiked regularly unlike petrol, which is considered a rich man’s fuel.

What may also be a cause of worry for the government now is the rising disparity between petrol and diesel prices which, before this hike, stood at Rs 25. With petrol having been deregulated, its price is being hiked regularly, but diesel’s is not.

This has led to huge distortion in fuel prices and 80 per cent of new cars sold are now diesel-run. Diesel accounts for the lion’s share in the subsidy burden as it accounts for 40 per cent of the total sales by oil companies.

The Petroleum Ministry has sent a proposal to the Finance Ministry to levy a tax on diesel vehicles through increase in excise duties or to find some ways of taxing diesel vehicles.

Officials say this may be the only way to compensate oil companies and the exchequer for the huge disparity as dual pricing of diesel is not possible, given the practical problems. This skew has created a situation wherein two-wheelers are running on the more expensive petrol while luxury cars are running on subsidised diesel meant for trucks and tractors.

Diesel losses alone this year are estimated at Rs 70,000 crore, while the total losses to oil companies on subsidised products including LPG and kerosene are estimated at Rs 1.35 lakh crore.

Officials said the oil companies have posted first-quarter losses of Rs 14,000 crore. For the last two years, oil companies have posted small profits due to compensation from the government and marginal profit margins.

Since these companies are listed, they cannot be allowed to post losses and become sick, because the oil marketing sector is almost entirely government-controlled. In addition, funds are required to expand their operations.