The Hindu Business Line : Petrol, diesel prices cut

Petrol and diesel will weigh less on your wallet from Wednesday midnight. On the heels of the Congress President, Ms Sonia Gandhi's suggestion and pressure from the Left parties to consider reducing the prices of the two products in order to protect the consumer, the Government has announced that petrol would be cheaper by Rs 2 per litre and diesel by Re 1 a litre.

The Petroleum Minister, Mr Murli Deora, on Wednesday informed Parliament that it had been decided to reduce the retail selling prices of petrol and diesel with effect from Wednesday midnight for the State-owned oil marketing companies (OMCs).

This would put to rest all speculations on whether the softening of prices in the international oil markets would lead to any reduction in the retail price of fuels.

Equitable sharing

"In order to put least burden on the common man and also to protect the health of Navratna oil companies, the Government had evolved a policy of equitable burden sharing to deal with the consequences of high international oil prices," the Minister said.

Stating that the Government was maintaining a close watch on the international prices and accordingly will consider revision in the retail prices in future, Mr Deora said that 87 per cent of the burden of increased international oil prices was shared by the Government and the PSU oil companies.

Though the news would bring respite to the consumers, the margins of the State-owned oil marketing companies may take a hit.

According to analysts, while petrol margins would come down by Rs 2, for diesel it would be negative, and if crude prices again surge ahead, the situation could worsen unless domestic prices are revised accordingly. They argued that under recovery has a direct co-relation with profitability.

Under recoveries

Under recoveries are the difference between retail prices to be charged based on trade parity and the prices actually charged from the consumer. The under recovery suffered by OMCs for the first half of the current fiscal on sale of four petroleum products is about Rs 33,200 crore.

As per estimates based on current crude prices, the under recovery for 2006-07 is now expected around Rs 50,000 crore (including Rs 2,000 crore additional impact due to price cut announced).

Share prices fall

The shares of Bharat Petroleum Corporation (BPCL), Indian Oil Corporation (IndianOil) and Hindustan Petroleum Corporation (HPCL) dropped on Wednesday at the Bombay Stock Exchange.

IndianOil, which opened at Rs 485 closed at Rs 463.35, BPCL after opening at Rs 361.20 closed at Rs 354.20 and HPCL closed at Rs 291.95 after opening at Rs 300.05.

Intl crude prices

On Wednesday, the prices of international crude were in the range of $56-58/barrel. The Indian basket on November 28 was at $58.87 a barrel, up from $58.13 a barrel on the previous day.

Though the extent of losses/under recovery on petrol and diesel combine has come down, the situation with regard to liquefied petroleum gas (LPG) and kerosene continue to remain difficult as no price increases were made in these two products, when the Government had effected a price increase in June.

Then, the prices of petrol and diesel were increased by Rs 4 a litre and Rs 2 a litre, respectively.

At the time of the hike, Indian crude basket had averaged $67.29 a barrel in May and $67.15 per barrel in April. In August, the Indian basket touched $75 a barrel.

With the softening of crude prices, the PSU oil marketing companies were making a profit of Rs 4.6 per litre on sale of petrol and loss of 46 paise on diesel.

At the current prices of $57-$58 a barrel, the marketing companies are still incurring under recoveries on diesel, kerosene and LPG.

As per estimates, the under recovery on the three products is expected to be close to Rs 2,450 crore for November after the international prices dipped.

For Maharashtra, the prices may undergo downward revision due to 5 per cent reduction in sales tax from December 1.

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