Price regulation may return to oil sector

Price regulation may come back to the oil sector.

According to sources, the Centre may once again use its influence on public sector oil marketing companies to temporarily hold back any further increase in auto fuel prices, even if it means incurring losses on sale of petrol and diesel.

At a meeting of PSU oil companies with oil minister Dharmendra Pradhan, this suggestion came up strongly to prevent a consumer backlash over fuel price rise despite international crude oil price being less than half of the levels prevailing in 2014.

In fact, oil companies did not revise petrol and diesel prices on Wednesday. Coming out from the meeting Pradhan, however, ruled out government intervention to disrupt the daily revision in petrol and diesel prices despite Rs 7.3 per litre spike in rates since July, saying the reform will continue.

He, however, justified the need to bring petroleum products in the ambit of GST to curb volatility.

But the minister remained non-committal on cutting taxes to soften the blow of relentless rise in prices since July 3, as the government’s need to finance huge infrastructure and social projects has to be balanced with consumer needs.

The BJP-led NDA government has increased basic excise duty on petrol and diesel nine times since it came to power (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, duty on petrol was hiked by Rs 11.77 per litre and on diesel by 13.47 a litre.

The premise of this increase was to cushion customers with lower duty when oil prices rise. But this cushion has not been offered so far as the government is short by over Rs 30,000 crore in revenue in FY18 due to lower dividend offer from the Reserve Bank of India (RBI) for year ended June 2017.

There is also the fear that the ambitious target of Rs 72,500 crore as disinvestment receipt this year may be missed.

Pradhan said that global prices have risen due to factors like hurricane in the US and there are already indications of “softening in the rates”.

“As a result of these hurricanes, 13 per cent of US refinery capacity was shutdown,” he said.
He said that the finance ministry has to take a call whether it is necessary to cut excise duty to soften the blow on customers, “but one thing is very clear - we have to balance the developmental needs with consumer aspirations.” Pradhan said 42 per cent of excise collections are transferred to the state government for infrastructure and welfare programmes, but also blamed state governments, several of whom have drastically increased VAT on auto fuel.

But a comparison of retail price of petrol and diesel with prevailing crude oil prices makes the price rise unpalatable.

Between September 2014 and now, while crude oil has fallen by over 50 per cent, the retail price of petrol and diesel have actually risen to reach the levels and even surpassing the levels (in the case of petrol) reached when crude was hovering at over $ 100 a barrel.

 While petrol prices have increased by Rs 7.32 to reach Rs 70.38 a litre in Delhi, the highest since August 2014, diesel rates have risen by Rs 5.36 to Rs 58.72 (as of September 13, 2017).

This is more than the price of petrol at Rs 68.51 prevailing in September 2014 when crude oil price was $101.89 a barrel.

An oil company executive said that retail price of petroleum products should not be linked with crude prices, as its movement depended on fluctuation in the price petrol and diesel globally.

A statement by the oil ministry justified the price rise suggesting it was mainly on account of an 18 per cent increase in free on board (FoB) price of petrol in international market from $ 57.42 a barrel in June to $ 67.85 a barrel on September 8. Similarly, FoB diesel prices in international market shot up from $57 a barrel in June to $68.32 a barrel on September 8.

The petroleum ministry statement also said that international crude oil price increased 13 per cent from July 1 to September 13 ($ 47.86 a barrel to 53.06 a barrel).   Pradhan also defended the government saying that prices now were not the highest. “The all time high retail selling price at Delhi of petrol was Rs 76.06 per litre on September 14, 2013,” he said.

What he did not mention was that the current retail price of petrol and diesel were the highest in this government despite fall in crude oil prices.

What has pinched the consumers most is that after the switch over to daily price revision by OMCs in July, the retail price of petrol and diesel has consistently moved up with reductions only in the first fortnight period.