Country’s economic, political state doesn’t allow price hike: PetroMin

“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 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.

The shift, it said, would reduce revenues of the refineries by Rs 27,600 crore per annum and substantially reduce the refining margins of the new refineries being built, thereby reducing their ability to service their capital requirements. Refinery price of petrol and diesel is fixed at trade parity that is a mix of 80 per cent import price (including freight and insurance) and 20 per cent export price. LPG and kerosene are priced fully on import parity.

... contd.