The petroleum ministry has told the Prime Minister’s Office that the “economic and political situation in the country” do not permit increase in the prices of petrol and diesel, as had been recommended by the BK Chaturvedi Committee set up by the Prime Minister.

“Domestic pricing of petrol and diesel is a highly sensitive issue, and pricing decisions are subject to several factors, including economic and political situation in the country. In spite of a decision by the Cabinet Committee on Political Affairs, adopted in its meeting on June 4, to allow a smaller monthly price increase in petrol, diesel and LPG, the said increase has not been effected for July in view of high inflation rate,” petroleum secretary RS Pandey wrote to TKA Nair, principal secretary to the Prime Minister.

In the note dated August 7, the ministry has said that though the price adjustments would help reduce the under-recoveries by state-run oil marketing companies and improve their financial health: “it has, however, not been possible to effect the desired increase in prices in view of the inflation in the recent past”.

The Chaturvedi Committee had recommended raising the price of petrol by Rs 2.50 a litre per month till March 2009 and diesel by Rs 0.75 till 2010 to eliminate subsidies placed on them. While Indian Oil Corp is likely to end the fiscal with a net loss of Rs 5,800 crore, Bharat Petroleum would lose Rs 7,000 crore and Hindustan Petroleum Rs 5,500 crore.

The panel’s recommendation of pricing petrol, diesel, LPG and kerosene at the refinery at global market rates has also been rejected by the ministry as ex-refinery price was “critically linked” to retail pricing of petrol and diesel. “This can work in a competitive and globally efficient market system... For a country that imports nearly 80 per cent of its crude oil, any pricing mechanism based on export parity will result in a disincentive to domestic refineries,” the ministry said in its note.

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