Karnataka Polls: Oil firms lose nearly 500 crores after first fuel price announcement in 19 days

Last Updated: Mon, May 14, 2018 19:13 hrs
A man fills up his car at a petrol station in Rome

Oil Marketing Companies took to tweaking petrol rates in poll-bound Karnataka state. New rates for petrol and diesel were fixed after OMCs abstained from the daily price revision during a poll hiatus observed during for 19 days in Karnataka. The price for petrol was hiked by 17 paise a litre and diesel by 21 paise on Monday.

Price of Petrol in the national capital region was hiked to Rs 74.80 per litre from Rs 74.63 previously while diesel rates were increased to Rs 66.14 a litre from Rs 65.93. The price revision has helped diesel touching a record high while petrol is at a 56-month peak.

For OMCs, the abstinence has proved costly as international markets witnessed build-up in crude rates and strengthening of the US dollar. Oil PSUs had kept rates unchanged for 19 days or nearly three weeks during the time Karnataka went to polls. This despite a spiralling hike in input costs and were forced to come back to a daily revision in prices.

Rates in Karnataka have been static since April 24 and PSUs refused to acknowledge if rate-freezing was followed a government order. During the last revision conducted on April 24, petrol and diesel prices were hiked by 13 paise each. But prices were frozen thereafter.

In the last 19 days, crude price has peaked from $78.84 per barrel (nearly 159 litres or 42 US gallons) $ 82.98 now, according to sources privy to fuel pricing methodology. Benchmark international diesel rates during this period have climbed from USD 84.68 per barrel to USD 88.63.

Also, the rupee has weakened to Rs 67 per US dollar from Rs 66.62, making imports costlier.

A PTI report had quoted Sanjiv Singh, Indian Oil Corp's (IOC) Chairman as saying that the state-owned firms were "temporarily moderating" prices to avoid sharp spikes and panic among consumers.

Oil Minister Dharmendra Pradhan had last month denied reports of a directive to state oil firms to absorb at least Re 1 a litre hike by not raising prices in line with cost.

A similar effect was observed when Gujarat had gone to polls. The prices at petrol pumps of state-owned fuel retailers like Indian Oil Corp (IOC) were cut by 1-3 paise every day in the first fortnight of December 2017 before the state went to polls.

They started moving up immediately after polling for assembly elections in Gujarat concluded on December 14, leading to speculation that government may have asked oil companies to hold the prices. The government had in June 2010 freed petrol price from its control and the diesel rates were deregulated in October 2014. Prices have since then moved more or less in tandem with international rates barring a few exceptions like the period before a crucial election.

State-owned oil companies in June last year dumped the 15-year old practice of revising rates on 1st and 16th of every month and instead adopted a dynamic daily price revision to instantly reflect changes in cost. The PTI also quoted another analyst as saying that had the practice been followed in letter and spirit, petrol and diesel prices would have increased by Rs 1.5 a litre in last 19 days.

Finance Secretary Hasmukh Adhia and Economic Affairs Secretary Subhash Garg have ruled out any excise duty cuts to cushion rate spikes resulting from international oil prices that have seen a hike. However, a global rally in crude prices has pushed domestic fuel prices far higher than expected levels.

(With inputs from agencies)

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