Valuation of upstream oil cos to improve post hike: Tulsian

Excerpts from India Business Hour on CNBC-TV18 Watch the full show » RELATED NEWS Petrol decontrolled: Has enough been done by govt? Market-driven fuel price to boost private cos: Oil Secy Oil mkting cos cheer govt's move to free fuel prices Oil price-hike: cars to cost more by July ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty?

The government today took a bold step towards reform by allowing for the partial de-control of fuel prices. Starting midnight tonight petrol prices will be market linked. That amounts to Rs 3.50 hike per litre of petrol - a 6.7% increase. Diesel prices will also be de-regulated, but over time. For now they have been hiked by Rs 2 rupees a litre - that's a 5% increase.

The Empowered Group of Ministers also announced that LPG prices will be hiked by Rs 35 per cylinder and kerosene prices are up by Rs 3 per litre. Though both cooking fuel prices will continue to be administered, analysts estimate these price hikes will reduce underrecoveries from Rs 77,000 crore to Rs 53,000 crore. This means many of the key recommendations of the Kirit Parikh Committee have been accepted, except for the complete de-regulation of diesel prices.

However, the big question on everyone's minds is when will the government align diesel prices to international market prices? When asked Oil Secretary S Sundareshan said, "We have not taken a final decision on that. Let's see how things go."

On the fuel price hike impacting inflation, the government's Chief Economic Advisor said that it will push monthly core inflation up by 90 basis points.

In an interview with CNBC-TV18, RS Pandey, Former Oil Secretary and SP Tulsian, sptulsian.com gave their perspective on the fuel price hike.

Below is a verbatim transcript. Also watch the accompanying video.

Q: How have you read the government's position on in principle on agreeing to free up diesel prices eventually?

Pandey: We must complement the Ministry of Petroleum and Natural Gas. It is a very decisive step amidst all kinds of difficulties the petrol prices have been freed, totally deregulated. If you look at what happened sometime back, very recently the administered prices for gas also was revised upwards to USD 4.20. I think these two steps are clear and decisive steps towards reforms in the sector. Therefore it's a job very well done.

Secondly, it perhaps has not been possible to deregulate diesel prices as of now. But some revision upwards in the diesel prices, kerosene and LPG prices have been affected which will bring down the underrecovery to some extent. Under the circumstances that could be the balance between the consumers requirements and the need for protecting the exchequer etc, and also the needs of the oil marketing companies. So on the whole a good job has been done today.