The Hindu Business Line : Petro product price hike imminent — GAIL objects to LPG, kerosene subsidy burden

THOUGH the Government is all set to increase petrol and diesel prices and possibly heed the Left parties' demand to spare kerosene and LPG from any major price hike, at least one public sector company — GAIL India Ltd — has written an official letter to the Ministry of Petroleum and Natural Gas protesting against carrying the burden of subsidised kerosene and LPG.

Hinting that the reports of further burdening the company with additional subsidy had led to a drop of Rs 7.50 in its share price on May 30, the letter said that this had resulted in erosion in market capitalisation of Rs 634 crore in a single day.

The letter, written by the GAIL Chairman, Mr Proshanto Banerjee, to the Secretary in the Petroleum Ministry, Mr S.C. Tripathi, says that with the reported Cabinet decision to raise natural gas prices, GAIL would henceforth have to purchase feedstock gas for its LPG and petrochemical plants at the revised price of around $ 3.86 per mmbtu.

The adverse impact on the profitability of GAIL on these two counts works out to be Rs 862 crore and the LPG business would incur a loss of Rs 140 crore by the end of 2005-06, Mr Banerjee said.

"Against this background, the subsidy burden borne by GAIL on kerosene and LPG assumes significance. ... .as a fractionator, GAIL was directed to bear a subsidy burden of Rs 1,137 crore in 2004-05 on the premise that GAIL produces LPG from low-priced administered price gas. In the revised gas price regime, this premise no longer holds good. Furthermore, it would be pertinent to mention that during meetings on October 19, 2004 and on May 18, 2005, you had agreed that GAIL would not bear subsidy on kerosene, an aspect that has not formally taken effect so far,'' the GAIL Chairman's letter said.

"In view of the above, I would request you to kindly issue necessary instructions so that GAIL does not have to bear any subsidy towards LPG or kerosene henceforth,'' Mr Banerjee said.

Left reconciled to hike: Meanwhile, a hike in petrol and diesel prices seems imminent with the Left parties reconciled to this possibility after a meeting with Prime Minister, Dr Manmohan Singh, here this evening.

Speaking to newspersons after the meeting, the CPI General Secretary, Mr A.B. Bardhan, said, "unfortunately, it seems that the Government is thinking in terms of raising the prices of diesel and petrol, without which they feel it will not be possible to meet the gap between domestic and international crude prices."

Asked whether their suggestions to minimise the impact of the price hike on the common man had been taken into account, Mr Bardhan said, "Even after considering our suggestions, the Government feels that the prices have to be increased." He, however, hoped that the prices of LPG and kerosene, which are consumed by majority of the people in the country, would not be raised.

Today's meeting comes in the wake of the Left parties' threat to launch a countrywide agitation if their suggestions to minimise the burden on the common man were not accepted. Leaders of CPI, RSP and Forward Bloc had been invited to the meeting today, sources said.

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