Financial Daily from THE HINDU group of publications
Tuesday, Jun 15, 2004
Industry & Economy - Petroleum
Government - Politics
UPA agrees on marginal hike in petrol, diesel prices
The Union Minister of Petroleum and Natural Gas, Mr Mani Shankar Aiyar, coming out of the Prime Minister's Office after attending the meeting on oil pricing formula on Monday. V.Sudershan
New Delhi , June 14
PETROL and diesel prices could go up by about Rs 1-1.50 per litre from June 16, with nearly all constituents of the ruling United Progressive Alliance (UPA) Government agreeing to a marginal increase in prices.
The Union Cabinet is likely to take up the issue at its meeting on Tuesday morning and if a revision is approved, the prices will go up from the midnight of June 15-16, sources said.
Mr Mani Shankar Aiyar, the Petroleum Minister, who accompanied Finance Minister Mr P. Chidambaram for a meeting with the Prime Minister, Dr Manmohan Singh, on the issue earlier in the day, is believed to have hammered out a consensus with key allies on the need to raise prices.
Mr Aiyar met Mr Sitaram Yechury of the CPM, Mr D. Raja of the CPI and Mr Prem Gupta of the RJD and spoke to Mr Dayanidhi Maran of the DMK and Mr Ram Vilas Paswan of the Lok Janshakti over phone.
By the end of the day, all the 14 alliance partners had been taken into confidence on the issue and a hike in fuel prices looked imminent, the sources said.
They added that the Left parties had agreed to a nominal price hike in petrol and diesel, provided the LPG and kerosene prices were left untouched.
Mr Aiyar said that he had spoken to allies as part of the consensus building exercise but refused to divulge anything on the Government's plan of action.
During the day, officials from the Finance and Petroleum Ministries worked on the impact of measures like cut in Customs and excise duties on crude and products and increasing subsidies on LPG and kerosene, before arriving at the price revision.
The oil marketing companies are set to suffer heavy losses as the Finance Ministry has not acceded to most of the duty reductions mooted by the Petroleum Ministry, according to Finance Ministry officials.
The Ministry has not agreed to the idea of moving to a fixed rate regime from the prevailing ad valorem regime. Switching to fixed rate regime would mitigate the impact of oil shocks on the consumer.
The Customs duty on crude and products have not been altered at all. The Finance Ministry might, at the most, look at a reduction in excise duties on kerosene and LPG.
This leaves little room for the companies to tackle the global price shocks that are being absorbed at a loss.
It appears that Mr Aiyar's efforts to negotiate tax sops for the companies have not met with much success.
On the other hand, the political compulsion of not enjoying a free hand in raising product prices in line with global prices will take its toll on the companies.
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