Petroleum Ministry presses for fuel price hike to wipe out subsidy

A view of a LPG plant of Bharat Petroleum Corporation near Coimbatore. A file photo.

Pressing ahead with the Kelkar Committee recommendations and grappling massive under-recoveries, the Petroleum and Natural Gas Ministry has initiated a Cabinet note to raise the cap on the subsidised LPG supply from six to nine cylinders a household a year and increase diesel, LPG and kerosene prices in phases.

As the Finance Ministry refused to share the subsidy burden of the oil marketing companies, the Petroleum Ministry is pressing for a phased price increase to cut the subsidy down to the bare minimum during the next two-four years.

Based on the Kelkar Committee’s recommendations, the Ministry has proposed that the oil companies be allowed to increase the LPG price immediately by Rs. 50-Rs. 100 and raise the rate every quarter till the subsidy is wiped out. The committee had recommended that LPG subsidy be wiped out during the next four years with a price rise of Rs. 130 a year. However, because of the sensitivity of the issue and its political implications, a massive increase at one go is unlikely.

In the case of diesel, the Ministry has proposed that the under-recovery of Rs. 9 a litre be wiped out in the next 15 months through a phased increase of 60 paise a month, or an increase of Rs. 1.50 a litre, and then a series of marginal increases from April till the deficit is neutralised. However, experts say any attempt to increase the price substantially is likely to be met with stiff political resistance.

The Ministry also wants the kerosene price increased by Rs. 10 a litre during the next two years to cut the massive subsidy. The oil companies are losing Rs. 9 on a litre of diesel, Rs. 30.60 on a litre of kerosene and Rs. 490 on a LPG cylinder.

Of the estimated fuel subsidy of Rs.1,66,000 crore during 2012-13, the Finance Ministry sanctioned Rs. 30,000 crore and released the first instalment of Rs. 10,000 crore to the oil companies last week. The government favours increasing the cap on the LPG supply to nine cylinders. At the same time, it wants to raise the price to compensate for a subsidy of Rs. 8000 crore the hike in the cap would entail on it.