The first option before the Cabinet Committee on Political Affairs was that petrol and diesel pricing “may be freed that is, removed from government control with immediate effect” while retaining government hold on fixing kerosene and cooking gas LPG prices.
While giving the power to state-run oil marketing companies to fix prices, this option would have meant a cut of Rs 14.89 a litre on petrol and Rs 3.03 per litre on diesel.
The CCPA today chose the second option: A reduction of Rs 5 per litre on petrol and Rs 2 per litre on petrol with no change in retail prices of kerosene or LPG where OMCs continue to lose Rs 17.26 per litre and Rs 148.32 per cylinder respectively.
“This was chosen as it garners profit for the OMCs in the last five months of the fiscal year and pares the burden on the government which has to meet part of the under-recoveries by issuing bonds,” sources said.
It also gives the Centre the option to re-calibrate prices depending on how global price of crude oil behaves in future, they said. This was also indicated by Petroleum Minister Murli Deora who said that today’s reduction was an “interim measure”.
The three OMCs Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum are now estimated to lose Rs 1.11 lakh crore in fiscal 2008-09 with largest chunk of Rs 96,000 crore in the first half of the fiscal. They started making the profits on both auto fuels from November but today’s cuts would take away Rs 5,3000 crore.
Sources said that the price reduction had the consent of Congress chairperson Sonia Gandhi and has been timed to bolster the feel-good factor that is being ushered tomorrow with a fiscal relief package to boost the slowing economy.
Today’s price cuts would provide an extra Rs 6,000 to the people who could use it for other consumer goods. It would also help lower the inflationary pressure on the WPI where Fuel, Power, Light & Lubricants Group has 14.23 percent weight.
In June, the government raised the price of petrol by Rs 5 per litre, diesel by Rs 3 per litre and domestic LPG by Rs 50 per cylinder due to the high international prices of crude oil that touched a peak of $147 a barrel mid-July. Since September, crude prices started sliding and are now at a four-year low of $43.5 a barrel but the government could not revise prices downwards as the Model Code of Conduct was in force.