Latest on oil subsidy issue

Ministries clash on oil subsidy issue





EGOM meet to mull raising diesel prices on Thursday . SERIOUS differences have emerged between the petroleum ministry and the finance ministry over the manner in which the expected subsidy bill of `70,000 crore on petroleum products is to be financed during the current fiscal.While the finance ministry is willing to foot only one-third of the total subsidy bill, the petroleum ministry is of the view that the oil companies are in no position to bear the crushing two-thirds burden, which would work out to around `47,000 crore.There is a lot of heartburn among officials of the petroleum ministry and the oil companies over the finance ministry’s view that the loss estimate has been inflated with notional costs and needs to be calculated afresh.



The oil firms are also of the view that since they are listed firms there is also the issue of corporate governance that needs to be kept in mind when the price issue is settled.The oil companies have been allowed to hike petrol prices as it is still largely considered to be a rich man’s fuel. However, they are incurring heavy losses on kerosene, LPG and diesel sales.While the petroleum ministry has backed the demand of the oil firms for a rise in the prices of cooking fuels and diesel, the government’s political compulsions have come in the way of implementing the decision.A Group of Ministers headed by finance minister Pranab Mukherjee is expected to look into the issue. The government will walk a tightrope on Thursday between raising diesel prices to reduce the burden of subsidies or holding them steady to keep a lid on inflation.A panel of ministers, empowered to decide fuel prices, is expected to meet on Thursday.



Asia’s third- largest economy, which is trying to cut its deficit, has been looking for new ways to reduce subsidies paid to staterun oil retailers and reflect global crude oil market realities.The oil firms are losing around ` 280 on each LPG cylinder sold to households and around ` 6 per litre on diesel sales.Given the political compulsions and the galloping inflation that is taking a toll on its image, the government cannot increase the price of LPG by more than ` 20- 30 per cylinder. Similarly, diesel is a politically sensitive fuel since it is used in farms and public transport sectors and any price rise beyond ` 2- 3 a litre is an extremely difficult proposition, a senior official said.With the Organisation of the Petroleum Exporting Countries ( OPEC) cartel having refused to raise production to meet the increased winter demand for heating fuel in the US and Europe there seems to be no immediate respite in sight either as crude oil prices rose to around $ 94 a barrel on Tuesday.

….by….S. P. S. Pannu / Mail Today newspaper


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