Jaipal Reddy's comment that EGoM will decide fuel price hike upsets Pranab

The announcement by Petroleum and Natural Gas Minister Jaipal Reddy that the Empowered Group of Ministers (EGoM) would take a call on the petrol and diesel price hike has laid bare the confusion within the Ministry over how to deal with the skyrocketing prices of crude oil in the international market.

Mr. Reddy said on Friday that the international market was volatile. “I wish to take the matter to the EGoM after the Budget is presented,” he told journalists.

International crude oil prices have gone beyond $110 a barrel, widening the gap between the domestic retail selling price and the cost of production.

However, the matter is said to have upset Finance Minister Pranab Mukherjee, who saw the announcement by Mr. Reddy as an infringement upon the free-pricing policy regime put in place for petrol last June. “The Finance Ministry was very upset and asked the Petroleum Ministry to issue a clarification about the free-pricing regime in place for petrol and also state the intention of the government not to tamper with it,” a senior Ministry official said.

Later in the evening, Petroleum Secretary S. Sundareshan clarified that there was “no change in the policy” of the government regarding the pricing of petrol being market-determined at the retail and refinery gate levels and that any reports to the contrary were incorrect. Oil Marketing Companies continued to have the freedom to determine the price of petrol.

Mr. Reddy had further stated that Mr. Mukherjee was busy with the budget and that the matter would be considered by the EGoM whenever he had time for the meeting. The government had not interfered with the pricing of petrol since it was decontrolled in June 2010. “The Petroleum Minister could have made this comment without any intention of actually trying to trample the marketing freedom of the Oil marketing companies. The clarification was issued to set at rest any kind of speculation,” another official said.

The Petroleum Ministry is hopeful that customs and excise duty being cut in the Union Budget would help avoid a hike in petrol and diesel prices. Mr. Mukherjee has already stated that the Indian economy was resilient enough to deal with the rising crude oil prices, which had surged to its highest in 30 months.

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