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Fuelling non-reform PDF Print E-mail
Thursday, 24 May 2012 00:00
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Prices of deregulated petrol hiked after Parliament off!

 

With the rupee continuing to plunge on the government’s inability to carry out any kind of reform measure, you’d think the UPA would be keen to unleash a set of reforms. Indeed, that’s what finance minister Pranab Mukherjee indicated some days ago when he spoke of the need to take austerity measures, though the fact that these were to be announced after Parliament’s session came to an end did make it clear the room for action was always going to be constrained. Top on the list of reforms, most conceded, was a hike in petroleum prices, more so since petroleum minister Jaipal Reddy had pointed out that each one rupee fall in the currency’s value relative to the dollar led to a R8,000 crore hike in the losses of oil PSUs. The fall in the value of the rupee since last year, he said, led to a loss of R72,000 crore. Once all of this is taken into account, oil PSUs stand to lose around R1,90,000 crore in FY13 with the under-recovery at R13.64 per litre of diesel, R31.49 per litre of kerosene and R480.5 per cylinder of LPG—once you take into account the volumes consumed of each fuel, the loss on diesel is R81,192 crore, R27,532 crore on kerosene and R29,997 crore on LPG.

 

While the R7.5 hike in petrol prices will undoubtedly be touted as a reform measure by the government to show there is no policy paralysis, and anti-people by the Opposition, the irony is that petrol is technically a deregulated fuel, where the oil companies are free to change prices depending upon global prices. Yet, such is the freedom of the PSUs and the hands-off attitude of the petroleum ministry, the prices of petrol were not raised since November 2011 despite the oil companies losing over R4,650 crore in the bargain since then. So what passes for an austerity/reform measure is nothing but allowing the oil PSUs to do what they were always supposed to do. There has been zero price reform for diesel—this will have to await an Empowered Group of Ministers, we’re told later in the week, but there’s no certainty as to when, and in what form, this will go through. For now, the higher price differential between petrol and diesel will only encourage more people to switch to diesel, further worsening the under-recoveries on that fuel. Whether the market—both stock as well as currency—gets taken in by this non-reform will be clearer later in the day.

 

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