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| New mechanism may fuel oil price rise soon |
| Ajay Modi / New Delhi Aug 29, 2010, 00:18 IST |
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Oil marketing companies want to change over to monthly review from fortnightly.
If the oil marketing companies (OMCs) increase the price of petrol on September 1, blame it on the new pricing mechanism. The change from a fortnightly review to a monthly one makes a case for petrol price rise. However, if one takes into account a fortnightly pricing mechanism, the OMCs will make a small margin on petrol from September 1.
 In the case of diesel, the OMCs’ revenue loss should come down by 80-90 paise a litre from Rs 2.50 under the existing fortnightly mechanism. Diesel is yet to be decontrolled and the OMCs will continue to calculate the revenue loss based on the previous fortnightly average. Diesel price was increased by Rs 2 on June 25.
An executive in one of the oil companies, who did not wish to be quoted, told Business Standard, the OMCs were discussing among themselves whether to go for a petrol price hike on September 1 in order to recoup the revenue loss made on the product last month due to non-revision of retail price even after decontrol. The retail price of petrol should come down by around 50 paise a litre in case of a fortnightly calculation and go up by around 70 paise on the basis of monthly average.
In a meeting on July 14, the OMCs had decided that they will go for a monthly review of petrol prices, discontinuing the earlier practice of a fortnightly review. “The OMCs have decided that prices of petrol will be reviewed on a monthly basis unless there is a sharp fluctuation in crude oil and international petrol prices (in the middle of the month),” S V Narasimhan, director (Finance), Indian Oil, had told reporters after the July meeting. Though he said a call on the price increase would be taken towards July-end, the companies did not make any price adjustment.
The Indian basket of crude oil has averaged $72.84 a barrel so far in the second fortnight of August — 6.33 per cent lower than the average of $77.77 in the first fortnight. However, the August average at $75.30 is higher than the July average of $73.54. When the government decontrolled petrol price on June 25, an annual average of $75 for crude was taken into account.
In aviation turbine fuel, Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation, along with private retailers like Essar Oil are expected to slash price by around 2 per cent or Rs 1,000 a kilolitre. The decline will come after two consecutive increases in ATF prices on August 1 and August 16.
“International petroleum product prices have been coming down for the last 10 days. Therefore, we need to adjust ATF prices downwards. Also, the losses on diesel should come down. In petrol, too, the situation will be better and there will be margins. But we have incurred some losses in petrol over the past fortnights. So, the adjustment will be made taking that into account,” said an industry official.
On June 25 this year, the government announced decontrol of petrol prices, as suggested by the Kirit Parikh committee. The move led to an increase of Rs 3.50 a litre on petrol. In spite of this, the OMCs are estimated to have incurred an underrecovery of 50 paise a litre on the current retail price of Rs 51.43. However, crude oil price has been softening in the current fortnight.
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