Finance Ministry says it has no money left to foot the subsidy bill

As the Finance Ministry has told the Petroleum Ministry that it has no funds left to subsidise fuels, the prices of petrol, diesel and LPG are likely to be increased next week, after the monsoon session of Parliament concludes. In the past few days, the oil marketing companies have been pressing the Petroleum Ministry hard for an immediate increase, as the average crude oil price has risen once again, to $112 a barrel in the international market.

The revision could result in petrol turning costlier by Rs. 4 a litre, diesel by Rs. 5 and LPG by Rs. 50 a cylinder. However, there is no consensus yet on the increase in kerosene prices.

“Fuel [price] hike is likely to take place soon. The government is waiting for Parliament to adjourn… The oil marketing companies are losing huge amounts… on subsidised sale; and even the price of petrol, which has been decontrolled since June 2010, is being controlled indirectly by the government as it has restrained companies from revising the prices upwards in tune with the movement of crude oil prices. The oil marketing companies are losing around Rs. 5 a litre on the sale of petrol now,” a senior official of the Petroleum Ministry said.

The price increase has become inevitable as there are no signs of compensation from the Finance Ministry. “The Ministry has already conveyed to us that it has no money left to spare for such a big fuel subsidy bill. We have no option but to increase the prices. We cannot allow the oil marketing companies to bleed. They are already overstretched and burdened with huge borrowings,” the official said.

The prices of diesel, domestic LPG and PDS kerosene have not been revised since June 2011, though the production cost has increased by 28 per cent. The oil marketing companies are losing Rs. 560 crore a day on the sale of diesel and cooking fuel and are forced to resort to short-term borrowings for importing crude. The borrowings of the three retailers shot up to Rs.1,57,617 crore at the end of June, from Rs. 1,28,272 crore on March 31.

Diesel is being sold at a loss of Rs. 19.26 a litre, kerosene at Rs. 34.34 and domestic LPG at Rs. 347 a 14.2-kg cylinder. At the current rates, the three companies are projected to lose Rs.1,92,951 crore in revenue in the fiscal ended March 31, 2012.

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