Fuel price hike: Precursor to oil deregulation?

After the government raised fuel prices yesterday - even as Oil Secretary RS Pandey said the government is ready to bear the subsidy burden for cooking fuels - is that a pre-cursor to oil deregulation? CNBC-TV18's Gautam Broker analyses.

Here is a verbatim transcript of Gautam Broker's comments on CNBC-TV18. Also watch the accompanying video.

A more holistic view of the government's move indicates that a partial deregulation is on cards. The government essentially says it will bear the fixed component - something that cannot be tinkered with - which will remain at about Rs 30,000 crore. The auto fuel compensation, which is more flexible, and can be tinkered with, will be managed through judicious price hikes and through upstream contributions.

In Wednesday's move, the government cut down its subsidy bill by Rs 14,000 crore to about Rs 56,000 crore. The government said it will bear Rs 30,000 crore and the rest Rs 26,000 crore would be borne by upstream companies - and the benchmark price is USD 70 per barrel. The move is thus indicative of a partial deregulation.

The other point: Gail is a big beneficiary. Gail bears only the LPG and the kerosene subsidy, it's subsidy burden was around Rs 1,800 crore last year while its bottom line was Rs 2,800 crore. With the subsidy out of its system, Gail's EPS goes up dramatically.

Gail is a midstream company that mainly deals in transmission. It has a petrochemicals business too but it mainly deals with LPG - and had to shell out the kerosene subsidy for no reason whatsoever.

ONGC and Oil India will have to bear the Rs 26,000 crore - that will keep fluctuating with the crude prices.