The Hindu Business Line : Govt weighing options as crude oil prices near $100

New Delhi, Nov. 1 With international crude prices within touching distance of $100 per barrel, the Government is basically left with two choices – either revise domestic retail prices of petrol and diesel or look for a fresh package to compensate the state-owned oil marketing companies (OMCs), which could be in the form of an enhanced bonds issue along with a possible readjustments of duties on petroleum products.

The Government had recently devised a package to partially take care of the Rs 54,935-crore revenue loss estimated to be suffered by the OMCs for selling petroleum products below the cost price and had left retail prices untouched.

Crude oil crossed $96.28 a barrel today in the Asian trade. Though planned in advance, the Petroleum Minister, Mr Murli Deora, today met the Finance Minister, Mr P. Chidambaram, to discuss measures to cope with record crude oil prices. According to sources, the Petroleum Minister also apprised the Prime Minister, Dr Manmohan Singh, of the issue.

The OMCs – Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation – are taking a hit on their profitability on the retailing front. According to the package announced recently, 42.7 per cent of the burden is to be taken by the Government in form of oil bonds and 33 per cent by upstream oil companies of the projected revenue loss of Rs 54,935 crore. The remaining 25 per cent is to be borne by the refiners.

In case the revenue loss increases the compensation package may be in proportion to the increased revenue loss – 42.7 per cent of the new figure through oil bonds and 33 per cent from upstream firms. The retailers may be given some relief through a cut in excise duty on petrol and diesel. If the Government considers reducing the excise duty, then the selling price of the products will also come down, thus narrowing the differential between the product price and the selling price. Indications are that the Government is not too inclined on increasing the fuel prices considering the political sensitivity involved.

“Oil prices have gone up so much... we need to urgently find a solution. We discussed solutions to high oil prices,” Mr Deora said. He, however, declined to elaborate further on the structure of the package the Government would be considering.