Oil Secy says 'price hike inevitable'

Oil Ministry will decide the quantity of price hike in the course of the day, the Petroleum Secretary, MS Srinivasan announced to the press early today. He said that they seek to increase oil bonds and reduce customs duty from 5% - 0%, although they can't issue bonds to oil companies beyond a certain limit.
 
He added that a price hike would be inevitable and there was a desperate need for a duty rejig. 

The decision on oil prices will be taken in three to four days. But the decision on fuel prices is not on the Cabinet's agenda today.  

He expects PSU oil companies revenue loss to top Rs 2 lakh crore in FY09.

The Petroleum Ministry is seeking to hike Rs 10 per litre in petrol and Rs 5 per litre in diesel.

Minister for Petroleum, Murli Deora said that there is no proposal to ration auto fuel. As of now, he said that he cannot comment if auto fuel prices will be hiked. The petroleum ministry will firm up the cabinet note soon. On the other hand, decision on package for oil marketing companies will be taken within a week.

Excerpts from the interview with MS Srinivasan:

Q: An appropriate proposal you are taking to the Cabinet if at all?

A: Let me make it clear. It is a Cabinet meeting today, but this subject is not coming up because this needs a preparation for a day or two. We discussed all the relevant issues for this year in detail. The situation is alarming. We have to steam the rot even at the beginning. So what are the measures necessary to arrest the trend and to bring their sector back in discipline. These are the things we discussed, including the duty adjustments, including the quantum of bonds, which will be required this year and also the price adjustments which will need to be given at the earliest with the approval of the Cabinet. So by this evening we will be going to the concerned authorities with the drop proposal, which we are confident of getting through within the next 4-5 days.

Q: When you said price adjustments what do you mean? Does it mean price adjustments in the retail price of petrol and diesel?

A: Price adjustments can be two ways up and down. Now you know the situations so it has to be up.

Q: Are we looking at fuel price?

A: We are. Definitely it is part of the package.

Q: When do we expect?

A: When you take a package there are only 3-4 things possible. One is upstream, which is making a lot of money because of the increased crude price sharing a part of the profit. Second thing, the Ministry of Finance giving certain bonds as an acknowledgment of loan; third thing is a price revision, fourth thing is the duty adjustment. There is nothing to our knowledge beyond this. We have to go into working on different combinations. Specific quantity we have not worked out. This we will be doing in the course of today. Definitely price adjustment has to be there, how much and in respect of what products, a clearer picture will emerge before the evening.

Q: But Prime Minister said no price hikes?

A: I don’t think Prime Minister said anything to that effect. He said the interest of the consumers will also be considered and protected. That is all he said.

Q: When you say duty adjustment, what duty adjustment that you are looking at inside the customs?

A: Both customs and excise duty adjustments we will seek because last year the total under recoveries was Rs 77,000 crore, but this year we estimate that the under recoveries will be three times as much. So the options available to us are getting narrower and we have to go into each and every part of the package and arrive at some suitable numbers, which should be acceptable to all.

Q: By any chance is there any proposal that there will be a price hike in petrol and diesel would be excluded from it?

A: Nothing of this sort.

Q: Will that mean you will be seeking crude duty on custom duty?

A: Customs duty reduction on both crude and certain imported petrol and diesel. As you know we are importing a specific quantity of petrol and diesel to meet the initial auto-fuel policy pending upgradation programme of refineries which will take a couple of years. On that also we are seeking customs duty reduction. Otherwise the oil companies, given their serious cash crunch, maybe handicapped and their capacity to import crude as well as import products, which may lead to shortage on the street, which we want to avoid at any cost.

Q: By this evening the situation will be clear that what are the options so one of the options could be raising the bonds?

A: As I said, all the options upstream how much is it going to be, bonds how much will be acceptable and how much will be accounted for. Thirdly duty adjustment, fourthly upward price revision let me make it clear again. All the four components of the package will be coming out of the proposal.

Q: You will be suggesting?

A: We will be suggesting.

Q: Can you explain custom duty cut by 5% on crude?

A: I don’t know we had to arrive at the numbers. The thing is as I said we know the underrecovery, we know the capacity of the upstream to be part of the profit, we know how much bonds we are willing to accept because bonds beyond a limit they become pieces of paper. So we will have to really workout a combination.

Q: Will you be taking SLR accepted bonds?

A: Not that it matters at this stage. When a patient is in critical condition you are not going to give crocin, what you are suggesting is similar to that, don’t do that.

Q: Price increase is inevitable?

A: It is. I think I have given you a set of combination whatever is under consideration specific numbers and specific parts of the package I think a clearer picture will emerge sometimes in the evening. Minister will also be there in the evening.

Q: Where is the meeting?

A: Cabinet meeting is normally held in south blocks.