Fuel retailers threaten to hike petrol prices by over Rs 9/litre
New Delhi   18-Apr-2012

In a rare show of tough talk, public sector oil companies including IndianOil went public on Tuesday with an ultimatum of sorts that it will raise petrol prices by more than Rs 9 a litre unless the government either compensates petrol losses or cuts central excise and state taxes.

Since the PSUs are majority owned by the government, they are neither prone to belligerent talk nor are they usually in the business of serving ultimatums to the government. Their going public with the present missive seems to be preparing the ground for a petrol price hike. The fuel retailers and exasperated by the inability to pass on petrol hikes, which is a deregulated product, following recent opposition from UPA allies like the TMC. The missive comes on a day when the RBI once again reiterated the need to hike petrol prices.

Given the inability to hike petrol prices and the losses being borne, oil companies have asked the government to declare petrol a regulated product temporarily and provide hundred percent cash compensation to the OMCs. This looks unlikely since the government has indicated on several occasions that ultimately it wants to move ahead on decontrol of fuel products since incessant subsidies are not feasible. Going back on the only deregulated product, petrol may be seen as a regressive move.

The other alternative that has been suggested is to reduce excise duty on petrol from Rs 14.78 per litre by an amount equivalent to the under-recoveries on MS and simultaneously advise the states to reduce the rates of sales tax, which vary from 15% to 33% (that works out and varies from Rs 10.30 per litre to Rs 18.74 per litre).

IndianOil said in as many words that “the current situation where OMCs have to import crude oil at $121.29 per barrel and sell it at $109.03/barrel is no longer sustainable.

The OMCs said continuation of such pricing will only impede the ability of the companies to import crude oil and may affect product supply-demand balance or else they will hike the price of petrol by Rs 8.04 per litre (excluding state levies) with immediate effect. The companies are awaiting the government’s response and should no relief come forward, they will have no option but to effect the increase in prices. IndianOil, together with HPCL and BPCL, is losing Rs 49 crore a day on petrol sales alone.