Fuel price hike coming? Oil PSUs losing almost Rs 30,000cr per month

NEW DELHI: The govt on Friday said state-run oil companies are losing Rs 30,000 crore amonth almost by selling petrol, diesel and domestic LPG below market prices, signalling mounting financial pressure and the possibility of fuel price increases in the coming days.

Official sources said though the govt and oil marketing companies had absorbed the higher costs for more than two months, there was a growing recognition within the govt that the arrangement could not be sustained “indefinitely”.





Asked whether the govt was considering a fuel price increase, Sujata Sharma, the joint secretary in petroleum ministry, didn’t respond directly. “The endeavour so far has been to see that there is no price increase,” she said at a press meet.

Officials said countries such as Japan, Spain and France have increased pump prices by 30-35% since the West Asia war began, but India has not. The cost of crude for Indian refiners has shot up from $69 a barrel in Feb (average) to $114.4 last month.

Can't hold fuel losses indefinitely: Officials; crude averages $105 a barrel in May so far

The cost of crude has been averaging $105.4 a barrel so far in May. Brent crude hovered at nearly $100 a barrel on Friday, while the Indian oil basket was priced at $99.69 a barrel.

The rupee cost has shot up further due to the currency weakening against the dollar. "Oil companies are purchasing costlier oil and gas from the global market, but selling fuel at lower prices. It is impacting their finances. That's why the govt reduced the excise duty on petrol and diesel, which is costing it Rs 14,000 crore a month," Sharma said.

Officials said losses were not sustainable indefinitely, especially amid projections that prices would remain elevated for at least four months even if a permanent ceasefire was announced now. While the govt has cut excise duty on petrol (Rs 13 a litre) and diesel (Rs 10), it has limited headroom.

The govt will have to bear the subsidy on domestic cooking gas cylinders.

Govt and oil companies will, however, have to decide on the extent of the increase. Besides, a steep rise in petrol prices will stoke headline inflation, with retail inflation currently at 3.4%.

G Krishanakumar, the former CMD of Bharat Petroleum, said, "India is going to remain a fossil fuel-dependent economy till a very strong renewable energy base is created. To manage this transition, oil companies need to invest. They cannot do that with weak balance sheets. While the govt has done an excellent job in managing the situation, it can only pad up for some time and there is a need to raise prices. After all, most countries have increased prices since the war started. We can look at innovative ways, such as a daily increase in small amounts, whose impact will not be felt by consumers."

Former HPCL chief SK Surana said, "Companies do have under-recoveries, the earlier it gets settled, the better. But the govt will have to bear in mind the impact on the macroeconomy and consumers."



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