Nine days after the government increased the price of petrol by a steep Rs 7.54 a litre, it has decided to reduce it by Rs 2, including taxes. The price cut would be effective Saturday midnight, said oil marketing companies.
“This is not a political decision. The price cut is on account of softening global crude oil prices. We always said we would pass on any such benefit to consumers,” said the chairman and managing director of a state-run refining company.
The oil marketing companies had been, over the past week, indicating there was scope of reducing rates from June 1.
Petrol is benchmarked against global gasoline rates, which have fallen from $124 to $114-115 a barrel, giving room for Rs 1.50-1.60 a litre reduction in petrol prices.
Bharat Petroleum Corporation Limited (BPCL) Chairman and Managing Director R K Singh had said earlier this week that there was a possibility of reduction in petrol prices. “In the last fortnight, it has come down; both the product and petrol prices have come down. Therefore, there is a possibility of reduction to the extent of about Rs 1.50 or so,” Singh had said.
He had added this would have been more, but a depreciation in the value of the rupee had worsened the situation. “Despite that, there is possibility of reduction on the basic price to the extent of Rs 1.50. So, including the tax, it could be around Rs 2 or so,” he had said.
On Friday, Brent crude oil fell below $100 a barrel for the first time since October 2011 on a slowing Chinese economy. A depreciating rupee, however, limited the scope of relief. The benchmark Indian crude oil basket was about $4 lower, at an average of $105 for the fortnight ended May 31, compared to the previous fortnight, but rupee had fallen by Rs 1.95 during the same period.
Though a rise in the price of petrol, which had a 1.09 per cent weight in the wholesale price index (WPI), did not impact inflation significantly, the increase was necessitated on May 24 due to rising underrecoveries and a weakening rupee, the oil marketing companies had said. The steepest increase before this, in absolute terms, had been effected in May 2011, when the price of the fuel had been raised by Rs 5 a litre.
Indian Oil Corporation, while announcing the price increase, had last week said a further rise of Rs 1.50 a litre would be required to offset the loss of Rs 1,056 crore incurred in the current financial year.
This was the first price increase after a gap of more than six months. Though petrol stands decontrolled since June 2010, companies have been unable to pass the burden on to consumers on a regular basis due to political compulsions.
On account of prices not being revised since November 4 last year, the losses of three government-controlled oil companies—Indian Oil, Bharat Petroleum and Hindustan Petroleum—had risen to Rs 4,651 crore. Also, their demand for reimbursement of petrol losses had recently been turned down by the finance ministry.
Besides petrol, the oil companies continue to lose heavily on three controlled products—diesel, kerosene and domestic LPG—too. The prices of these three products had last been revised in June last year.
The government's inability to pass on increase in international prices on a sustained basis has meant that a price increase of Rs 12.53 a litre in diesel, Rs 30.53 a litre in kerosene, and Rs 396 a cylinder in domestic LPG cylinder, is still required to offset the losses. Oil marketing companies have been incurring a Rs 457-crore revenue loss on sale of these three fuels, according to a government press note issued yesterday.