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Petrol Price Hike

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Impact of Petrol Price Hike
Economics
State-run oil companies announced a hike of Rs 7.50 per litre in petrol prices - a direct fall-out of elevated international crude oil prices, which had until now not registered a pass-through in domestic market prices; thereby impacting the financial and liquidity position of oil marketing companies (OMCs) in the country. A depreciating rupee has only added to this pressure. While diesel and LPG prices have been left untouched, this move is expected to provide some support in reducing under-recoveries of OMCs through higher revenue inflows.

May 25, 2012

Decontrolled Petro-Price Regime: history Based on the recommendations of the Kirit Parikh Expert Group, the price of petrol was made marketdetermined with effect from June 26, 2010, in a bid to introduce a viable and sustainable system of petroproducts pricing. OMCs consequently base pricing decisions on international oil prices and market conditions. The Government simultaneously announced a series of duty and price changes in this sector in June 2011 to reduce the burden of rising oil prices on both OMCs and retail consumers. These included –     Elimination of 5% customs duty on crude oil Reduction in customs duty on petroleum products by 5% Reduction in excise duty on diesel by Rs 2.60 per litre Increase in price of diesel by Rs 3 per litre, of PDS kerosene by Rs 2 per litre and of LPG by Rs 50 per 14.2 kg cylinder

The estimated annual revenue loss for the Government from this move was pegged at Rs 49,000 crore, with OMCs expected to incur under-recovery losses to the tune of Rs 121,571 crore (as against an estimate of Rs 171,140 core prior to these changes). Actual under-recoveries for the year stood at Rs 138,541 crore in 2011-12. Financials of OMCs: descent Despite deregulation of petro-product prices and reduction in duties, the financial position of OMCs has only deteriorated further, with combined losses increasing by Rs 35,610 crore in FY11 over...

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