Diesel sales deregulation to save govt Rs 2,300cr: BPCL

Stocks of oil marketing companies posted a 2-to-4 percent rally during the last hour of the trading session on Wednesday in response to the oil ministry's proposal for a Rs 3-4.50 per litre hike in diesel prices and Rs 100 in LPG rates along with increasing the number of subsidised cooking gas cylinders for households to nine a year from the current cap of six.

Also Read: OilMin for Rs 4.50/L hike in diesel rates; Rs 100 for LPG
The market also reacted positively to the oil ministry's proposal to deregulate the bulk sales of diesel. The move is estimated to save the government Rs 2,300 crore and could have a significant impact on IOC which is the biggest bulk diesel seller in the country.
"No final decision has been announced on diesel and LPG prices and I will not be surprised if kerosene prices are hiked marginally. A phased hike in diesel, LPG prices is preferred and losses to the tune of Rs 25,000 crore may be reduced on the deregulation of bulk diesel," BPCL, CMD, RK Singh explained in an interview on CNBC-TV18. Below is an edited transcript of the interview on CNBC-TV18 Q: The government proposes to offer diesel  to bulk industrial buyers at market rates. How feasible is that plan and do you think it is possible to implement it soon?
A: The government will have to take a decision on this. However, it is doable. There is no problem with the implementation, but nothing has been communicated to us to date.. Q: How much does bulk sales account for BPCL and how much immediate relief would selling at market rates offer?
A: The bulk sales of diesel accounts for about 10 percent of the total volume. Deregulation, with the current rate of underrecovery at Rs 9-10, would entail an annual savings to the extent of about Rs 2,300 crore. The Indian Oil Corporation (IOC) has the largest market share in bulk segment. Q: What are you expectations on liquefied petroleum gas (LPG) because there are plans to raise the cap on the number of cylinders to 9 along a hike in prices as well. What kind of formula looks like feasible?
A: The government compensates OMCs the losses incurred on sales of LPG. If they want to raise the cap from 6 to 9 then it is logical to raise the price as well to some extent so that the raising of cap does not lead to unusual build-up of the under recoveries. Q: In an earlier interaction you stated that implementing a hike in kerosene prices would be the most difficult. But even that seems to be on the agenda. Would you be surprised if something like that were to happen?
A: No, I wouldn’t be surprised. In fact, I support the deregulation and removal of subsidy on the fuel altogether. We are fully geared to implement any such decision taken by the government. Q: How much relief would the likely outcome of a piecemeal hike in fuel prices of Re 1 or 60 paise every month offer? Will the relief be on a quarterly basis?
A: It is sensible to raise prices in a phased manner rather than doing it at one go. If you do it in one go, it will create lot of problems in the market and may increase inflation. But if you raise the prices by 60 paise or Re 1 in a month or every 15 days over a period of 10 months or so, assuming the current levels of under-recovery remain with no unusual rise in food prices and the rupee-dollar remains in the same range, then over the next one year, the under recovery will be completely removed from diesel.
This will certainly help OMCs to the extent that the cash position will improve on a month-to-month basis. So, there will be relief but it will be staggered over a period of a year and that’s better. Personally speaking, I don’t recommend raising fuel prices by Rs 10 in one go. If you increase it in a phased manner, then people will get used to it and adjust their budgets accordingly. Over a period of time, peoples’ income would go up and the shock will not be felt.