It will see the re-emergence of private retailers
Even as it has gone for total deregulation of petrol price, the government is not far from entirely linking diesel price to international rates. At current prices of international crude, petrol price has been increased by Rs.3.50 a litre. For diesel the hike is Rs. 2 a litre, which is around Rs.1.50 less than the market-linked price.
Before the revision, oil marketing companies (OMCs) were making under-recoveries of Rs.3.73 a litre on petrol, Rs.3.80 on diesel, Rs.17.92 on kerosene, and Rs.261.90 a cylinder on domestic LPG. Now, there will no be under-recovery on petrol, but the OMCs will still incur a loss of around Rs.1.50 and Rs.15 a litre on sale of diesel and kerosene, and Rs. 227 on a cylinder of LPG.
The Empowered-Group of Ministers on deregulation, headed by Finance Minister Pranab Mukherjee, went ahead with partial implementation of the Kirit Parikh Committee report. The committee favoured an increase of Rs.100 in the price of an LPG cylinder and of Rs. 6 a litre of kerosene.
Petroleum Minister Murli Deora has said there will be a periodical revision of petrol prices based on the fluctuation in international crude prices, which is likely to happen every fortnight. Similarly, the government is firm on total deregulation of diesel price in phases; therefore periodical revision of diesel price may also be on the cards. However, the subsidy on domestic LPG and kerosene will continue for the time being.
“Even though the government will move slowly in the case of diesel, the essential decision has been taken in principle that the price would be market driven, would be determined by the cost of imports both at the refinery level and at the retail level,” Mr. Kirit Parikh said in an interview.
How would the government tackle the situation arising out of a steep hike in international crude prices that would have a cascading effect on the domestic prices? He said the government had now decided not to touch the excise duties on fuel prices so that it would have a little more flexibility in the future when the prices sent up. Then the Centre's intervention, in the first place, might just be a reduction in the excise duties and it would touch prices a little later if they rose very high.
Private players will re-emerge
Another major impact of deregulation would be the re-emergence of private oil retailers such as Reliance Industries Ltd. and Essar Oil, which went into oblivion a couple of years ago when international crude prices skyrocketed to touch $150 a barrel. While the public sector OMCs got government protection, private players crumbled under price pressure and had to close shop. But now in the decontrolled regime, private companies, including MNCs, will not only enter the market with renewed vigour but also pose stiff competition to the oil PSUs. And here the beneficiary would be consumers.