Diesel prices may go up by Rs 10 per litre in the next 10 months and petroleum prices could see a similar hike over the next two years if the petroleum ministry has its way. Prime Minister Manmohan Singh also made a strong case for phased hike in prices of petroleum products today.
The ministry is pushing for an increase in the prices as revenue loss of oil marketing companies for selling cooking gas, diesel and kerosene below the market price is estimated at Rs 1,67,000 crore this year.
"We are left with no choices... There is a need to raise prices. The government is contemplating raising diesel prices by Rs 1 per litre each month for next 10 months to bring retail rates at par with their cost," said a senior official in the oil ministry.
Diesel prices were last increased in September by about five rupees to Rs 47.15 per litre in Delhi. Even at this price, oil companies make a loss of Rs 9.28 per litre. Kerosene rates have not been changed since June last year and it currently costs Rs 14.79 per litre in the city.
The oil ministry has asked the finance ministry to compensate the oil marketing companies for at least 60 per cent of their under-recoveries this year. Under-recoveries in the first six months are at Rs 85,586 crore.
The finance ministry has so far given Rs 30,000 crore towards oil subsidy for this year. The oil ministry is asking for the balance Rs 70,000 crore, while the remaining Rs 67,000 crore will come from upstream companies Oil and Natural Gas Corp, Oil India Ltd and GAIL India.
"We are pushing for total (oil subsidy) of Rs 1,00,000 crore this year. At least they should give us a letter of comfort so that oil companies can make a provision for it in their third quarter (October-December) balance sheet," added the official.
In Budget 2012-13, the finance ministry made a provision of Rs 40,000 crore for oil subsidy to state-owned Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp, but that was for meeting last year's claims. This year too, it may roll over a part of Rs 70,000 crore to the next financial year.
In 2011-12, the government gave out Rs 83,500 crore by way of cash subsidy, up from Rs 41,000 crore in 2010-11 and Rs 26,000 crore in 2009-10.
The oil ministry is also proposing a common duty structure for domestic as well as commercial non-subsidised LPG.
At present, there are four rates for LPG. Domestic non-subsidised LPG is exempted from the levy of excise as well as customs duty unlike LPG for commercial purposes. Thus the rates of cooking gas for the two differ. The government also gives cooking gas for domestic purposes at subsidised rates.
Subsidised LPG costs Rs 410.50 per 14.2-kg cylinder and any requirement beyond the current cap of six cylinders is provided at the market price of Rs 895.50 per cylinder. For non-domestic use, the cylinder costs Rs 1,156 because of the levy of taxes.
The government is also planning to bring in 7,000 additional distributors of cooking gas by 2013-14. The official admitted that although the demand for LPG cylinders has come down after the cap was put on the number of cylinders per household, some dealers were creating an artificial scarcity of the gas.