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Cabinet panel to decide on fuel price hike today
June, 04th 2008

After days of consultations, the government may finally take a call Wednesday on raising retail fuel prices to offset the ever enlarging losses of state-run firms because of high international crude oil prices.

We are still discussing the issue, External Affairs Minister Mr Pranab Mukherjee, who also heads a Group of Ministers on fuel prices, said.

There is a Cabinet meeting scheduled for tomorrow, he said but refused to say if fuel price hike was on agenda.

Separately, an official said the Cabinet Committee on Political Affairs (CCPA) is to meet early tomorrow morning to reach a consensus on raising petrol, diesel and LPG prices.

The CCPA is authorised to take a decision on the issue but if a fiscal package is to accompany the hike to minimise the projected Rs 246,000 crore revenue loss on petrol, diesel, domestic LPG and kerosene this fiscal, the Cabinet Committee on Economic Affairs (CCEA) may be convened.

State-run IOC, BPCL and HPCL are projected to lose Rs 246,000 crore revenues on account of selling petrol, diesel, LPG and kerosene below cost price.

Prime Minister Dr Manmohan Singh has held four rounds of discussions with UPA Chairperson Sonia Gandhi on the issue.

Petroleum Minister Mr Murli Deora, who has been pushing for a Rs 10 a litre hike in petrol, Rs 5 per litre increase in diesel and Rs 50 per cylinder raise in LPG prices, has readied a note for consideration of the Cabinet.

However, the hike may be moderated to Rs 3, 5 or 7 a litre on petrol and Rs 2, 3 or 4 a litre on diesel. LPG prices may be raised by Rs 20 per 14.2-kg cylinder, sources said.

Prime Minister Dr Manmohan Singh yesterday indicated the possibility of raising fuel prices when he said consumers cannot be fully insulated from the impact of rising global oil prices.

The recent reverses suffered by the ruling Congress in Karnataka Assembly elections and inflation rate climbing up to a 45-month high of 8.1 per cent are underpinning governments willingness to take drastic measures.

The Finance Minister Mr P Chidambaram has vehemently opposed a duty cut to cushion the impact of global prices and is also against raising prices, as it may further fuel inflation.

At current global oil prices, Indias oil subsidy bill may shoot up three times to 2.2 per cent of the GDP this year. If the price hike and duty adjustments like cut in customs rates and excise levies are not announced, BPCL and HPCL would run out of cash to even import crude oil in July. IOC can sustain imports till September. RBI has, however, doubled the borrowing limit of these firms to 30 per cent of their capital funds.

The three firms, who till last week were losing Rs 16.34 a litre on petrol, are incurring a loss of Rs 21.43 on sale of every litre since June 1. Similarly, the losses on diesel have widened to Rs

31.58 per litre from Rs 23.47 while on kerosene they have jumped to Rs 35.98 from Rs 28.72 per litre.

Losses on LPG have swelled to Rs 352.90 per 14.2-kg cylinder from Rs 305.90.

The three firms are losing Rs 725 crore per day on fuel sales, an IOC official said.

The basket of crude oil India buys averaged US $ 124.02 per barrel in the second fortnight of May as against US $ 115.09 in the first fortnight. The Indian basket was at US $ 67 per barrel in February when petrol and diesel prices were raised by Rs 2 and Re 1 a litre respectively.

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