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Murali Gopalan & Shilpa Joglekar
Mumbai, Sept 20: Oil companies have effected a steep hike in the prices of four key petro-products -- naphtha, low sulphur heavy stock (LSHS), furnace oil (FO) and light diesel oil (LDO). While the hike in port price of naphtha is approximately 8.75 per cent, the hike for LSHS and FO is 11 per cent. The price of LDO has increased by about 4 per cent to Rs 8,000/kilolitre from Rs 7,700/kl.
In the last few months, international prices have strengthened, forcing domestic oil companies to follow suit. User industries are thus just beginning to feel the real impact of free market pricing. Since deregulation began in October 1 last year, product prices have seen a hike of at least 35 per cent.
User industries like steel, power, fertiliser, cement, petrochemicals will now have to pay more for their feedstock requirements though it remains to be seen if the increase is passed on immediately to the consumer.
Naphtha price at all port locations is now Rs 11,180/tonne, up from Rs 10,280/t a month ago. It will bedearer in inland locations and the revised price ex-Mathura is Rs 11,750/t, up from Rs 10,850/t; ex-Barauni Rs 11,610/t from Rs 10,710/t; ex-Koyali Rs 11,500/t as against Rs 10,600/t and ex-Panipat Rs 11,870/t compared to Rs 10,790/t. The increased prices do not take into account overheads like state surcharge, freight, excise duty.
LSHS will cost Rs 8,170/t in ports, up from Rs 7,350/t formerly. Ex-Mathura, it is Rs 8,740/t (Rs 7,920/t); ex-Barauni LSHS will be priced at Rs 8,600/t (Rs 7,780/t); ex-Koyali Rs 8,490/t (Rs 7,670/t) and ex-Panipat it will be Rs 8,670/t (Rs 8,040/t).
The hike has been as pronounced in the case of FO which will now be priced at Rs 7,620/kilolitre in all ports compared to Rs 6,860/kl. As for ex- Mathura, FO will cost Rs 8,150/kl (Rs 7,390/kl) and ex-Koyali Rs 7,920/kl (Rs 7,160/kl). Since the increase in product prices, which are at the lower end of the value chain have been so steep, the hike in diesel is expected to be even sharper when effected. Sources expect diesel pricesto increase by Rs 3 per litre.
Globally, diesel prices are higher than product prices, but in India the reverse is true as the oil companies have increased product prices at least six times since May, leaving the diesel price untouched. A sharp hike in diesel price (and possibly petrol) is only inevitable.
Naphtha, FO, LSHS and LDO were removed from the administered pricing mechanism effective April 1 last year as part of the deregulation schedule recommended by the expert technical group headed by Nirmal Singh of the ministry of petroleum and natural gas. In the first seven months following the deregulation, product prices dropped as the international oil market weakened.
"These are going to be hard times and with the firming up of world prices, there is little user industries can do than pass on the hike to consumers," sources said.
Lest the era of APM could be missed for its seemingly tangible comfort levels, it ought to be remembered that none of the benefits of reduced world prices were passedon to the consumer. This is exactly what the Nirmal Singh committee strove to reiterate in its report.
"Efficiency enhancements associated with a move from APM to MDPM (market-determined pricing mechanism) are to the benefit of all concerned in the medium to long run. The indirect benefits through better utilisation of hydrocarbon deposits, higher oil security, a more efficient allocation of resources in the country and, hence, better employment opportunities and higher income will far outweigh the direct costs."
The report has gone on to add that the "transition period can also be used to dispel some of the misplaced fear sand apprehensions that exist about pricing reform in hydrocarbons. At the end of the transition period, prices will be determined by the interplay of market forces, competition and enhanced efficiency. These will lead to downward pressure on retail selling prices at the end of the transition period."
INSIGHT
Prices may rise further
The sharp increase in prices ofthe petrochemical feedstock naphtha and the fuels LSHS and FO is naturally going to adversly affect downstream companies. These had to be done in line with the sharp increase in international prices of crude oil and petroproducts. With winter purchases taking place, prices are likely to increase further.
Though prices of products consumed directly by various industries have been increased, companies on governments intervention, have shied away from increasing prices of fuels for mass transportation like petrol and diesel. The longer the delay, the higher will be the price increase. Till then the companies will have to bear the brunt.
Shishir Asthana
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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