Duty on crude may go to soften fuel price hike

Government officials reckoned if prices are increased to make good the entire loss,it would politically suicidal

The Empowered Group of Ministers (EGoM) is scheduled to meet on Wednesday to consider a hike in prices of fuel products together with a cut in duties to bridge the losses suffered by state-run oil marketing companies (OMCs).

The freeze on diesel prices since last June has resulted in present day losses of nearly Rs 16.17 per litre for the OMCs while the unofficial control over deregulated petrol since January is bringing in Rs 7.98 per litre less.

Government officials reckoned if prices are increased to make good the entire loss,it would politically suicidal. So,what has been agreed to by the finance ministry Pranab Mukherjee chairs the EGoM is a multi-pronged approach that involves some sacrifice in terms of revenue loss due to duty cuts by the government,passing on a part of the burden to consumers in terms of price hike and loading OMCs with a bulk of the burden.

Story continues below this ad

The attempt would be to ensure that this mix provides relief to the OMCs to the extent of Rs 10 per litre on diesel and Rs 9.50 per litre on petrol or else,the under-recovery in the financial year 2011-12 would be an unprecedented Rs 1.30 lakh crore, said an official. Crude prices have jumped from about $75 per barrel then to $119.40 a barrel for the fortnight ending April 30. For arriving at the immediate consumer price increase of Rs 2 per litre on diesel and Rs 3.50 per litre on petrol as preferred by petroleum minister S Jaipal Reddy,the officials said the proposal before the EGoM is to abolish the customs duty of 5 per cent on crude oil and a reduction in customs duty on petrol and diesel to 2.5 per cent from 7.5 per cent.

The duty cut on crude oil would provide cushion to the OMCs which also double up as refiners while the cuts on diesel and petrol will lower OMCs payout to the national exchequer, said officials. While the customs duty cut on crude oil would provide a relief of nearly Rs 2 a litre on both products,an equal respite would come through the 5-percent reduction on products,they said.

This (duty cut) would also soften the countervailing duty which gets attached in the ex-refinery prices, said officials. Their CVD outgo is currently at Rs 2.60 per litre on diesel and Rs 6.35 on petrol.

Another issue for the EGoMs consideration is a reversal of the Re 1 per litre increase in excise duty on petrol and diesel done in the Budget for 2010-11. They are currently at Rs 14.35 per litre on petrol and Rs 4.60 per litre on diesel.

Story continues below this ad

But all these would depend on how much of a dent Mukherjee would want to take on his Budget estimates. Officials said that he may opt for a higher increase in consumer prices rather taking a large hit on duties. In line with their demand before the announcement of the 2011-12 Budget,the ministry has reiterated that prices of cooking LPG and kerosene be also raised,though marginally. The OMCs are currently losing Rs 28.28 a litre on kerosene and Rs 329.73 per cylinder on LPG for cooking.

The Centre would also press the states to show a little restraint by cutting their sales taxes which range from 15-33 percent on petrol and 8.80-25 per cent on diesel.