Oil prices sky high, but Govt won't hike fuel price

New Delhi: Crude oil prices soared to $100 a barrel on Wednesday for the first time. With the rising price, the Government is now between the twin horns of a dilemma whether to raise retail fuel prices and risk a voter backlash or to continue to bleed the PSU oil companies and issue more and more oil bonds.

But for a Government approaching polls such a price hike would be suicidal, which is where it has a second option - cutting of duties.

The retail prices now are about 9 per cent lower than what they were a year and a half ago. In the interim the price of the Indian crude basket has gone up by a huge 33 per cent.

As a result the oil companies are sitting on a loss of over Rs 70,000 crore. If this loss is to be wiped out then the fair price of petrol in Delhi should be Rs 52.77 per liter while diesel should cost us Rs 40.73 per liter.

The Government's revenue projections from the various duties on petroleum are based on a oil basket of between $ 60 to $ 65 per barrel but since the actual price of the Indian crude oil basket is touching $ 90 now, the reality is that the Government has made a lot more money from duties than it had set out to.

So a cut in duties would serve three purposes - first consumer prices will not be affected, second oil companies will be able to cut back on some of their losses and third the Government's finances will be largely unaffected as the state has already made up its share of oil duties.

Union Petroleum Minister Murli Deora on Thursday said that the price hike is not the only solution for reducing the losses faced by public sector oil firms and other option were being discussed.

Deora said he had talks with Left leaders including Sitaram Yechury of CPI-M late last week. "The Left is very cooperative. They have said they will assist in finding a solution for the present crisis," PTI quoted him as saying.

"Price hike is not the only solution. There are others options like excise duty cut as has been suggested by the Left. We've got to find the best solution," Deora said. Government would also focus on oil conservation as an answer to crude oil prices, he said.