Petroleum Ministry prepares proposal for a substantial hike in diesel prices

Worried over the mounting under-recoveries of the oil marketing companies (OMCs), the Empowered Group of Ministers (EGoM), headed by Finance Minister Pranab Mukherjee, is likely to meet on June 9 to consider a hike in prices of diesel, kerosene and domestic LPG.

The government on May 14 hiked the price of petrol by Rs. 5 a litre in view of the heavy losses being incurred by OMCs due to sharp rise in crude oil prices in the international markets.

A decision on hike in prices of diesel, kerosene and LPG hike, a politically sensitive issue, is expected to be taken by the government even as the Indian crude oil basket averaged $ 110 a barrel on Wednesday compared to $115 a barrel when petrol prices were increased.

The government and the Petroleum and Natural Gas Ministry have made it clear that it would not be in a position to foot the bill for the projected Rs. 2 lakh crore susbidy during 2011-12 and thus the only way out was to increase the price of all the three commodities.

Officials in the Petroleum Ministry said the Ministry had already prepared a proposal to be put before the EGoM for a substantial hike in the price of diesel. It is also pushing for hike in price of kerosene and LPG cylinder.

Officials said out of the Rs. 2 lakh crore under-recoveries projected for 2011-12, a loss of Rs. 1.37 lakh crore was incurred by selling diesel below cost. Currently, the three state-run oil marketing companies — IOC, HPCL and BPCL — incur a loss of Rs. 14.66 on a litre of diesel, Rs. 28.28 on kerosene and Rs. 329.73 on a domestic cooking gas cylinder.

The other members of the EGoM include Petroleum and Natural Gas Minister S. Jaipal Reddy, Agriculture Minister Sharad Pawar, Fertilizer and Chemicals Minister M.K. Azhagiri and Deputy Chairman of Planning Commission Montek Singh Ahluwalia.

In 2010-11, oil-marketing companies incurred a loss of Rs. 78,000 crore by selling diesel, LPG and domestic cooking gas below the market cost. Out of this, government compensated Rs. 41,000 crore and upstream companies such as ONGC, Oil India Limited and GAIL were asked to contribute 38.5 per cent (Rs. 30,286.75 crore).