The quiet manner in which the government has allowed oil marketing companies to raise diesel prices has upped investor sentiment, which led to a rally in the stock market. IOC jumped 15 percent in the morning trade after a 7 percent rally yesterday. The government has, however, not decided on the quantum of the hike per month, although reports suggest it will be 50 paise per month.
Speaking about the authorization to hike prices, PK Goyal, chairman, IOC said he hopes to raise prices regularly, but the quantum of hike has not been directed by the government. Goyal said IOC will revise diesel prices either fortnightly or monthly. "Another hike can be expected by next fortnight," he said. The IOC chairman clarified that deisel has been deregulated for bulk consumers like the Railways
The company's total underrecovery is expected to touch Rs 9600 crore on account of the rise in LPG Cap. In order to sweeten the bittel deisel price hike pill, the government had simultaneously raised the cap on subsidised LPG cylinder from 6 to 9 a year.
Here is the edited transcript of the interview on CNBC-TV18.
Q: There is a big rally in your stock, about 13 percent today on the hope that you will be able to raise diesel prices by a small quantum every month. Are you confident that you can go ahead and do that because earlier, with the supposed petrol deregulation, oil marketing companies could not raise prices quite freely? Do you think starting next month you can do it for diesel?
A: As per the government policy, definitely the government's stand is a very positive sign. We are hopeful that we will be able to increase our prices according to the directives of the Ministry of Petroleum.
Q: Will you need clearance from the government every month to effect these increases according to what you have understood?
A: I don’t think any such approvals are required.
Q: You have an express initiation by the government that you can indeed increase prices every month by a particular amount?
A: It is not a particular thing. Depending upon the situation, we can go ahead with the price increases. There is no specific quantum at this moment.
Q: You have also had to increase the cap on subsidised cylinders. Just in order to balance that out, how much would you need to increase diesel prices by?
A: That has not been worked out but, the total under recovery increase with a hike in the cap will be roughly around Rs 9,000 crore in a year.
Q: I am just a little unclear about what you just said because you said that the diesel price hike every month will depend on the situation. But, the situation is that the under recovery today is Rs 9 to 10.
A: At this moment, the under recovery is Rs 9.60 which has come down by Rs 9.15. Definitely, we are going to increase the prices, from time to time, as directed by the Ministry of Petroleum.
Q: So what is that directive exactly and what is the quantum of that increase and what is the periodicity of increase in diesel prices?
A: It will be fortnightly or monthly price hikes as per the pricing cycle.
Q: By how much will it be?
A: That we have not decided at the moment. At this moment, we have increased the price by 45 paise and hereafter, it will only be in small lots.
Q: What does pricing cycle exactly indicate though? Are you looking at global prices? What is the parameter there because right now you are working with sharp under recoveries on diesel, aren’t you?
A: The parameter will be what the government has decided. Some of the under recovery has to be passed on to the consumer so that the burden of a hike in the LPG cap can be offset with that.
Q: Just two other clarifications. (1) What kind of relief will you face immediately once you start selling to bulk consumers at market rates? (2) Have you been given any other directive with regards to how the subsidy will be split up? Is there going to be any relook on that as well post these diesel price increases?
A: Bulk consumers will be provided diesel as per the market determined prices and we have increased the prices by Rs 9.25 for the bulk consumers like railways, defence and other agencies. That will be recovering roughly Rs 11,500 crore in a year. The industry on the whole now will be recovering roughly Rs 15,000 crore in a year.
Q: Just to understand this finally, you are saying that there is no specific directive from the government saying that you can raise prices by 50 paise every month from now on?
A: There is no such quantum that has been fixed. This is as per the pricing trend. At this moment, we can increase the prices either fortnightly or on a monthly basis.
Q: But you will recall more than anyone else that a similar directive came through for petrol a couple of years back. At that point too you were quite hopeful that you will be able to raise prices but, you were not able to. What makes you hopeful this time around?
A: We are hopeful that as per the recent trend, for the last six months, we were able to increase the prices Motor Spirit (MS) as per the market determined prices. We have no under recovery at this moment on MS prices. So we are very hopeful that the same practice will continue for diesel prices as well and we will be able to increase prices in small batches from time to time.
Q: Going by the current environment then we should understand that oil marketing companies would increase prices again by the next fortnight?
A: We are hopeful of that.
Q: The quantum would probably be the same, 50 paise or so?
A: I can’t tell you the quantum but we will be increasing the prices by a small amount.
Q: Did the directive say anything about complete decontrol and what the government’s stand was on completely decontrolling diesel somewhere down the line?
A: It is not that. As the Minister of Petroleum has also mentioned, it is not decontrol, it is a price increase in small lots.