Business Today

Oil companies hike petrol price by Rs 5 per litre

In the steepest hike ever, state-owned oil companies increase petrol price by about Rs 5 per litre. The hike comes a day after election results of five state assemblies were announced.

Mail Today Bureau | May 16, 2011 | Updated 10:58 IST

A day after election results of five state assemblies were announced, state-owned oil companies jacked up the price of petrol by Rs 5 per litre on Saturday, the sharpest one-time increase ever.

The petrol price hike came into effect from Sunday. An oil ministry official, pointing to the rising price of crude internationally (a barrel has touched $ 110), said another price rise was coming.

This is the eighth hike in petrol prices after the Union government accepted the Kirit Parikh Committee's recommendation on June 25, 2010, to deregulate them. Petrol in Delhi was then selling at Rs 51.43 per litre. By allowing the oil companies to hike petrol prices, the government has made the "rich man's fuel" costlier by Rs 15 a litre over the last 11 months. It works out to a 32 per cent rise in less than a year.

Prices of diesel and domestic LPG are likely to be up by Rs 3-4 per litre and Rs 20-25 per cylinder respectively after a group of ministers headed by finance minister Pranab Mukherjee takes a decision on the matter at a meeting scheduled for next week.

{mosimage}Petrol will now cost Rs 63.37 per litre at Indian Oil Corporation outlets in Delhi - up from Rs 58.37 a litre. Bharat Petroleum stations will start charging customers Rs 63.38; Hindustan Petroleum has set the price at Rs 63.39 per litre.

The hike needed to make domestic rates at par with international prices was Rs 10.50 per litre but oil companies chose to hike rates by less than half of that, the official said, explaining why another price increase will come soon. The oil companies were holding the price increase since January although crude oil had touched a two-anda-half year high, he added.

The official said Sunday's hike was necessitated because of rising borrowings of oil companies which faced severe working capital shortage in view of losses incurred on fuel sales.

The IOC has seen its borrowings rise by Rs 15,000 crore in the last 45 days as it loses Rs 296 crore per day on fuel sales. Besides petrol, it loses Rs 18.19 per litre on diesel, Rs 29.69 a litre on kerosene and Rs 329.73 per 14.2-kg LPG cylinder.

According to the government's official policy, oil companies are free to charge market prices for petrol but in practice, the petroleum ministry still exercises control over them as inflation has become a political hot potato. Oil companies had kept petrol prices on hold as the ruling UPA coalition did not want to lose votes in the assembly elections in the five states.

The hike in petrol prices will fuel inflation further as commuting costs and freight go up and add to the crushing burden on household budgets already stretched with soaring prices of essential foodstuffs.

The petroleum ministry has expressed the view that the oil companies are making huge losses due to skyrocketing crude prices in the international market which have been hovering at around $ 110 a barrel.

But more than demand and supply playing as price determinants, it is the futures market and speculators who are responsible for pushing up the global oil price.

The other determining factor for oil price is sentiment. The mere belief that demand for oil will increase dramatically at some point in future can result in increase in prices.

Although finance minister Pranab Mukherjee has refused to cut customs and excise duty on crude to protect his projected fiscal deficit, economists C.P. Chandrasekhar and Jayati Ghosh argued for reduction of duties on petroleum products.

They urged the government to subsidise oil products to minimise the impact on consumers of volatile crude oil prices in the international market.

The two economists described linking the increase in international oil prices to the domestic market as an "absurd" decision.

The volatility in the international oil prices are "created" through speculation trading, they argued while dubbing the price hike as "insensitive'' . Internationally, even US oil companies are subsidised to the tune of $ 21 billion.

Opposition leaders too hit out at the government, describing the oil price hike as another instance of "opportunistic and insensitive" policy making.

BJP senior spokesperson Ravi Shankar Prasad attacked not just the "economist Prime Minister" but also the "lady of 10, Janpath" and the "heir apparent", referring respectively to the Congress president Sonia Gandhi and party general secretary Rahul Gandhi, as purveyors of people's misery.

"The cascading effect of this hike will drill a hole in the pockets of people already weighed down by price rise for the last six years of the Congress-led UPA rule," said Prasad.

"The mess that our economist PM has made is apparent to everybody but what we have not understood is the silence of 10, Janpath.

"And what is the so-called hope of the youth of this country doing to alleviate the suffering of the people?" asked Prasad.

The CPM, that has been asking the government to lessen its revenue share from petroleum products to neutralise the impact of fluctuating international crude oil price, immediately attributed the decision to hike prices a day after the assembly election results to "opportunistic politics". CPM leader Sitaram Yechury condemned the decision to hike petrol prices. "This is a cruel hoax on the common people," Yechury said.

According to CPM politburo member Brinda Karat, the petrol price hike is the UPA's "gift" to the voters a day after the elections.

"On top of the continuing inflation, this will lead to another round of price rise. Shame on this government," Karat said.

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