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LATEST NEWS UPDATES | Steep fuel price hike likely as under-recoveries rise -Rajesh Chandramouli

Steep fuel price hike likely as under-recoveries rise -Rajesh Chandramouli

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published Published on Sep 7, 2013   modified Modified on Sep 7, 2013
-The Times of India


CHENNAI: With the oil ministry looking to announce steps to curb fuel consumption on September 16, industry insiders and analysts expect a steep one-time increase in prices of diesel and domestic LPG.

In several key cities, the under recovery in domestic LPG is more than double that of the selling price while in diesel, the gap has increased to Rs 12.12 a litre from Rs 9.03 per litre at the beginning of the year, despite an increase of 50 paise per litre per month since January. Under recovery has been ballooning because of unfavourable movements in crude oil prices and rupee-dollar exchange rates.

"The significant increase in under recoveries in the past few months is likely to lead the government to effect a one-time increase in the price of diesel and subsidised LPG cylinders," says Abhinav Goel, senior director, India Ratings.

For example, in Chennai, the price per cylinder of subsidized LPG (capped at nine cylinders per household per fiscal), is Rs 398 while the non-subsidised one is Rs 930. In Delhi, each cylinder is retailed by the oil marketing companies at Rs 410 when a market price-driven cylinder costs Rs 930. In Mumbai, a cylinder of LPG for domestic use is sold at Rs 441 while its price is Rs 950 without subsidies.

"There is a lot of noise on petroleum prices. We must wait and watch the government announcements. While the oil industry wants a sharp adjustment in prices of both LPG and diesel, political compulsions could puncture any steep increases," an oil industry official said. The daily under recovery is Rs 461 crore, data from Petroleum Products & Analysis Cell showed. Government estimates that every one rupee depreciation against the dollar increases gross under recovery (GUR) by around Rs 8,000 crore. The current tension in Syria is also keeping crude oil prices on the boil.

A tight vigil against diversion of subsidized fuel meant for domestic use seems to be paying off. The consumption of cooking gas has started to dip since the government capped the sale of subsidized cylinders to every household. For the first time ever, sales have fallen for five successive months in comparison to the corresponding period the previous year. Consumption fell 0.7% in April 2013 over April 2012 while in May, the fall was more pronounced at 3%. In June the YoY fall was 4% while in July and August the fall in consumption was nearly 2% each.

The government capped the number of LPG cylinders per household to six a year effective September 2012, but enhanced it to nine in January 2013 under pressure from political allies.


The Times of India, 7 September, 2013, http://timesofindia.indiatimes.com/business/india-business/Steep-fuel-price-hike-likely-as-under-recoveries-rise/articleshow/22380533.cms


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