New Delhi: The government has told public sector oil marketing companies (OMCs) that retail price of petrol should not increase beyond Rs 75 a litre in Delhi, The veiled entry of administered price mechanism regime for the two decontrolled petroleum products — petrol and diesel — comes amid concerns that continued upshot in prices could have an adverse fallout for the ruling BJP ahead of elections.
Sources said OMCs have not been issued any written order on petrol prices, but the government being its largest shareholder has exercised its control to make sure that companies absorb a portion of the hike in retail prices and prevent consumers from paying abnormally higher prices.
To test the new scheme, sources said OMCs would absorb any hike in petrol price beyond Rs 75 only in Delhi. It could be extended to other parts of the country, if the global crude price maintains its rise.
“The finance ministry is not inclined to cut excise duty as revenue mobilisation is paramount to prevent fiscal deficit from going further out of control. In this situation, the best option is to cap increase in retail price of petroleum products. Hopefully, the oil market would correct itself and price of crude and products may fall. This would ease the situation and price controls could be withdrawn,” said a government official not willing to be named.
Oil minister Dharmendra Pradhan, however, on Thursday denied that the government has asked state-owned oil firms to defer raising the retail price of petrol and diesel ahead of elections in Karnataka.
“There is no such direction (to hold price hike). Companies are fixing the fuel prices on the basis of international oil prices,” Pradhan told reporters.
Petrol in Delhi is priced at Rs 73.94 a litre and given that benchmark Brent crude oil price is rising and has reached close to $ 72 barrel while the Indian basket of crude is hovering just below $ 70 a barrel, it would soon breach the Rs 75 a litre mark. This would mean OMC would start incurring losses on selling the product in Delhi very soon.
The bad news is that crude could well overshoot $ 80 a barrel mark soon. Saudi Crown Prince Mohammed bin Salman has already linked his expectation of higher oil prices of $ 80 with the timing of the initial public offering of world’s largest oil company Saudi Aramco later this year. Moreover, Opec is also working a production related arrangement with US shale oil producers that could continue the present surge in oil prices.
“The government seems to be experimenting too much to control the situation of rising petrol prices. Rather than price control, the effort should be reduce excise duty on petroleum products. In fact, this was the logic given by the government when it raised excise duty on products on nine occasions between 2014-16 when crude oil prices were low,” said an oil industry expert asking not to be named.
State-run fuel retailers Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp switched to daily price revision from a fortnightly pricing system in June as the government sought to further the pricing reforms in the sector when prices remained subdued.
But the system has now become a big headache for the government as constant increase in global prices is pushing up retail petrol and diesel prices daily. The big criticism the government has faced is on account of higher petrol and diesel prices even though global oil prices have remained low in an oversupplied market.
Pradhan had to convene emergency meetings with oil company heads on more than one occasion in the past to curb the rise. Crude oil price (Indian basket) is hovering around $65 a barrel (Indian basket) while retail price of petrol has reached at Rs 73.94 a litre. This was more than the price of petrol at Rs 68.51 a litre prevailing in September 2014 when crude oil price was $101.89 a barrel.
Ever since coming to power, the BJP led NDA government increased basic excise duty on petrol and diesel nine times (between November 2014 and January 2016) that more than doubled the government's excise mop-up to Rs 242,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.
In all, Rs 11.77 hiked duty on petrol per litre and that on diesel by 13.47 a litre. The October 4, Rs 2 excise duty cut is first such announcement by the government. What has pinched the consumers most is that after the switch over to daily price revision by OMCs in July, retail price of petrol and diesel has consistently moved up with reductions only in the first fortnight period.