Petrol prices up by Rs 7.50/ litre, diesel untouched

In one swift move, state-owned oil firms  IOC, BPCL and HPCL hiked petrol price by Rs 6.28 per litre, effective midnight. Including sales tax, the hike adds up to Rs 7.50/litre. 

The increase was on the cards with the rupee continuing its free fall against the US dollar, but the quantum of the hike took the country by surprise. However, diesel price has been left untouched though under-recoveries have been much sharper in that commodity as well as kerosene and LPG.
Speaking to CNBC-TV18 soon after the price hike, former ONGC CMD RS Sharma said some correction was warranted in diesel and LPG price as well. In absolute terms, diesel makes the largest impact followed by LPG, he said adding the move will impact even those who can afford it.
PK Goyal, director-finance at IOC said since the company needed to bring down excise duties up to the level of under recoveries, a price hike was the only option.
Asked when can one expect a hike in diesel prices, Goyal said it was a controlled procduct and hence the government had to take a decision. IOC has lost Rs 10,680 crore of under-recoveries on diesel itself. Also watch the accompanying videos.
Since diesel has been left untouched, Sunil Munjal, chairman of Hero Corp feels there would be lopsided demand for diesel cars. "Similar increase on diesel would have been justified." Petrol price in four metros now Mumbai- 78.16/L (70.66/L) Chennai-77.05/L(69.55/L) New Delhi -73.14/L (65.64/L) Kolkata - 77.53 (70.03)
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Market analyst SP Tulsian of sptulsian.com offers a different view on the hike in petrol prices that is assumed to be good news for the financials of the three oil marketing companies.
He also indicates that the oil marketing companies will never post a bottom-line in the red on a yearly basis because othe Rs 38,500 crore cash subsidy by the government, Rs 18000 crore will be for the oil marketing companies which will report an EPS of Rs 45 (BPCL), Rs 47 (HPCL) and about Rs 32 (IOC).
"So," Tulsian explains, "No quantum of hike in petrol prices will make a difference in the reduction the subsidy burden or under recovery of the government.  Sentimentally, the market will take this as a direct gain to the three OMCs, but eventually on an annualized basis it will not impact these companies much except for pain on reporting results on a quarter-to-quarter basis."
On the probable reasons for diesel being untouched, Tulsian says, "Petrol is already deregulated and there is no courage on part of the government or the OMCs to increase prices. A few of months ago the oil minister and the finance minister very categorically said that the OMCs were free to go and raise petrol prices."
"But the OMCs silently indicated that they were not allowed to do despite being deregulated. The government cannot claim that it is helpless to allow the OMCs to freely increase petrol prices. It is obvious that the force of political compulsion will prevent the government to go ahead and increase diesel prices."
Shell India former chairman Vikram Mehta, says that that government has only addressed a part of the subsidy burden with the Rs 7 increase in petrol prices. "The total burden accounted for by diesel, kerosene and LPG will continue. So the oil companies are going to continue to face a major cash crisis, major balance sheet problems. The problems created by a burgeoning fiscal deficit will continue as the subsidy burden has not been materially reduced."
He says that though the oil companies will not have to suffer losses from petrol any longer, in the overall scheme of things, this decision is not going to inspire much confidence amongst oil companies or investors looking forward to bolder steps towards deregulation.
"The fact of the matter is that the government has to take a decision on either allowing oil companies to run commercially sensible operations or shut them down. If they do not do something about diesel LPG or kerosene deregulation, the oil companies will not be in a position to pay their bills and at the end of the day there would be shortages at retail outlets."
"So from a political point of view, it's a question of either suffering the political backlash today or in the near future with long queues outside petrol pumps. There is no other way out of this. There is no such thing as a free lunch." (With inputs from CNBC-TV18)