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Madhumita Chakraborty
New Delhi, July 4: The Centre's decision to skip a diesel price hike last month, despite world market prices having gone up by more than $9 a tonne will wreak havoc on the oil pool account.
The pool deficit, which had dwindled to Rs 4,000 crore in April from more than Rs 12,000 crore a couple of years ago, should have gained nearly Rs 500 crore last month and will grow by that much, if not more every month, if diesel prices at home remain lower than world market prices. Since September 1997 diesel prices have been pegged to the monthly average of prices prevailing in the international market.
The system has kept diesel prices at home on a par with import prices and had a neutral impact on the oil pool account. In other words, diesel has not been a drain on the pool account, like subsidised petroleum products. It may have contributed a little to the kitty when oil prices came hurtling down last year and diesel prices remained somewhat stagnant at Rs 8 per litre within the country.
The spurt in oil pricesin March this year has found diesel prices soaring like other petroleum products. Diesel prices moved up from $108 a tonne in February to $119 a tonne in end-April. By end-May diesel was selling for $113 a tonne in the global mart. Diesel fetched a rate of $115 a tonne in mid-June.
The Union petroleum ministry effected a 3.5 per cent hike in high speed diesel (HSD) prices on April 19, to keep prices at home abreast of international rates. The April price was actually a reflection of the February rates prevailing in the world market, since diesel price trends catch up at home two months later.
The Oil Coordination Committee has consistently gone by the average of international prices prevailing two months ago, in an effort to be accurate in its estimates. Between February and April, diesel prices had jumped by $11 a barrel worldwide, meriting another upward revision of HSD rates at home.
The inevitable did not happen, however possibly because political prudence rules over economic exigencies in anelection year. The Centre's decision to keep diesel prices at Rs 10.28 a litre in the capital (and a little higher at other metropolises) will now, for the first time, make diesel a drain on the pool account.
Last year, India imported nearly 11 million tonne of high speed diesel to cope with the domestic demand of 37.45 million tonne. The refineries at home produced nearly 27 million tonne of the fuel.
This year the commissioning of the Reliance Petroleum refinery and the capacity additions at the other 15 refineries around the country should have brought down diesel imports, but that has not happened as yet. Diesel imports are expected to continue till the end of the year, but may dwindle as the domestic availability increases.
As long as imports continue, the Rs 1600 per tonne difference in the domestic price and international price will mean a drain of close to Rs 200 crore in foreign exchange for the country. For the oil pool account, the drain will actually be Rs 500 crore, since the oil poolreimbursement to refineries is at international price parity. The difference between the refinery gate price and the retail price is a gain or loss for the oil pool for controlled petroleum products. At present, the pool cross-subsidises liquefied petroleum gas (LPG) and kerosene prices with that of motor spirit and aviation turbine fuel (ATF).
It makes some money out of crude oil prices. Refineries pay the international price for crude, but the country's crude oil producers, the Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) only get 77.5 per cent of the global price.
The 22.5 per cent difference in the crude price paid to ONGC and OIL means a gain of roughly $3.6 per barrel for the oil pool account now that crude prices are close to $16 a barrel. While crude prices remained low, ONGC and OIL were given a floor price of $9 a barrel, which was really the nadir that crude prices hit late last year.
Oil prices in the Gulf and the North Sea jumped to $11 a barrel by March this year andhave never looked back. The margin between the global oil price and ONGC's floor price of $9 a barrel have since been tinkling into the oil pool account, trimming the deficit steadily every month.
Crude prices climbed to $ 17.22 a barrel in the North Sea last week. In the Gulf, Dubai and Oman crude were also close to the $ 17 a barrel mark. Higher crude prices could signal more gains for the pool account, but the inevitably higher petroleum product prices will not, as long as the Oil Coordination Committee cannot pass on the increase in diesel price to customers.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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