Where's the diesel hike? PDF Print E-mail
Monday, 18 March 2013 06:35
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Budget plans for it but oil PSUs fail to follow through


Given the Budget plans a R30,000 cut in petroleum subsidies in FY14 as compared to FY13, it is obvious the finance minister is serious about petroleum pricing reforms. Indeed, that is why, in January, the government came out with a decision to align prices of diesel sold to bulk users like the Railways to market prices immediately and to progressively do the same for retail sales. It was decided, and communicated to the oil PSUs, that diesel prices were to be raised in small amounts—45-50 paise per litre—till such time that there was no subsidy on this. Given the then global price as well as the value of the rupee, that meant it would take 18-20 months to wipe out the under-recovery on diesel sales. In other words, the additional burden to the consumer was to be imposed slowly, very slowly. It was unfortunate that the government chose to make this decision along with one increasing the cap on the number of subsidised LPG cylinders each family could get from 6 to 9, but the promise of getting diesel prices right made up for this.

While the January hike was followed up with one in February, the hike in global prices meant the under-recovery on diesel rose from R9.6 per litre in January to R10.3 in February despite the 90 paise hike in domestic prices. Given the oil marketing companies lowered prices of petrol by R2 per litre on Friday, you’d have thought they would have hiked diesel prices by the agreed to 45-50 paise per litre. Perhaps the fact that Parliament is in session could be one consideration, but if a government decision is going to be held hostage to whether Parliament is in session or whether a state election is due, how is any decision-making to be done? It doesn’t help that, in the meanwhile, under-recoveries on diesel are today up to R11.3 per litre. It’s easy to blame the government, but oil PSUs have to shoulder much of the responsibility since they simply aren’t doing their job. In the case of petrol whose prices were decontrolled way back in 2010, oil PSUs kept waiting for political clearances to hike prices and ended up with a loss on this deregulated fuel of around R9,000 crore in FY10 and FY11. It would be interesting to see what the independent directors on these PSUs have to say.


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