An Empowered Group of Ministers (EGoM) may meet on June 17 to consider freeing petrol prices from government control and possibly giving limited autonomy to oil firms to price diesel closer to market rates.
Also on the cards is a Rs 25 per cylinder hike in domestic cooking gas (LPG) rates in an effort to align retail prices closer to their cost, sources in know of the development said.
The EGoM headed by Finance Minister Pranab Mukherjee may decide to free petrol price from government control for the first time since 2004, when the UPA in its first stint decided to price auto fuels below their imported cost to keep inflation under check.
This move, going up by the current international crude rates, will result in a Rs 3.35 per litre increase in price of petrol in Delhi, sources said.
The EGoM, which could not reach a decision at its first meeting on June 7 as key ministers like Railway Minister Mamata Banerjee and Agriculture Minister Sharad Pawar were absent, may also decide to give oil companies freedom to price diesel if international oil price stayed below $ 90 per barrel.
If approved, diesel rates would immediately rise by Rs 3.49 per litre as current retailing selling price is calculated on $ 60 per barrel-level of crude oil prices while the actual rate is $ 72 per barrel now, they said.
If the crude climbs to $ 90 per barrel, diesel price in Delhi would rise by over Rs 7 per liter over the current selling price of Rs 38.10 a litre. Petrol in Delhi currently costs Rs 47.93 per litre.
The government would step in if crude oil crosses $ 90 per barrel and prices would be moderated either through cut in excise and customs duty or through subsidy from exchequer.
Sources said there may not be any problem in freeing pricing of petrol, which is considered a fuel used by the well-off, there were doubts on diesel which is used in transport sector and thus has inflationary impact.
If consensus at the EGoM is against even giving limited freedom to oil companies, then the government may settle for a Rs 2 per litre hike and try to build consensus for freeing the fuel around Budget time in 2011.
Ms. Banerjee, who was away in Kolkata at the time of the first EGoM meeting, had communicated that her party, the Trinamool Congress, was against ?any steep hike? in diesel prices and wanted domestic LPG and kerosene consumers to be spared, the source said.
Mr. Pawar, not known for blocking reforms, could not attend the meeting because of illness, while DMK leader and Chemicals and Fertilizer Minister M.K. Alagiri was present.
The EGoM had at the first meeting gone into the report of the expert group headed by Kirit Parikh that called for freeing petrol and diesel prices and a steep Rs 100 per cylinder hike in LPG rates and a Rs 6 per litre increase in kerosene prices.
Oil ministry made a presentation on the impact of the Parikh Committee?s recommendation, projecting a revenue loss of Rs 72,300 crore to state oil firms if petrol, diesel, domestic LPG and kerosene continue to be sold at rates below the imported cost.
The EGoM also discussed the impact implementing the Committee?s report would have on inflation, sources said, adding that freeing auto fuel prices would lead to a 1.4 per cent rise in the Wholesale Price Index (WPI). In April, WPI-based inflation was 9.59 per cent.
State-owned Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum currently lose Rs 203 crore per day on selling fuel below imported cost. They currently sell petrol at a loss of Rs 3.35 a litre, while the under-recovery is Rs 3.49 per litre of diesel, Rs 18.82 per litre of PDS kerosene and Rs 261.90 on every 14.2-kg LPG cylinder.