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UPA loses oil price battle PDF Print E-mail
Thursday, 17 November 2011 00:24
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UPA loses oil price battle

Oil prices have risen, so no reason to lower petrol prices

 

IndianOil reviews the MS (motor spirit, or petrol) prices on fortnightly basis and, based on the review, fixes the MS prices for the next fortnight. In keeping with this practice, IndianOil has reviewed the pricing cycle as prevalent in the last fortnight … over-recovery of R1.85 per litre”. That’s the IOC press release, explaining why petrol prices were lowered on Wednesday. Given that IOC hasn’t been changing prices every fortnight—since May, there have been two hikes and one rollback on Wednesday—it’s not clear what review IOC is talking about and, in any case, crude prices have started hardening again. The true test, of course, will come in two weeks time when, if you are to go by IOC’s press release, it will have to hike prices if the cost of the Indian crude basket (currently $111.68 per barrel) rises or if the rupee depreciates further.

The real issue, ironically, hasn’t been petrol prices for a long time, but the furore over the last hike has ensured it has been obscured—so, oil sector PSUs will continue to lose big-time, around R1,20,000 crore for the year. Oil PSUs lose R10.17 per litre of diesel, R25.66 per litre of kerosene and R260.50 per LPG cylinder—for the first half of the year, they lost R37,719 crore on diesel, R13,361 crore on kerosene and R13,820 crore on LPG. Ironically, when the Group of Ministers meets next month to decide on whether diesel prices should be deregulated, and at what pace, this will worsen things.

A higher diesel price with kerosene prices unchanged will mean a larger differential which will promote adulteration of diesel with kerosene. Wednesday’s cut in petrol prices, more than anything else, signals the government isn’t going to take any tough decisions in the run-up to the UP elections.

 

 

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