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Oil price hike tomorrow?

By Sushma Ramachandran

NEW DELHI JUNE 1. The Government is expected to announce an increase in the prices of petrol and diesel on Monday. The hike will be combined with a reduction in the excise duty on the two products to ensure that the burden on the consumers is minimised. The decision to increase the prices was taken today at a series of meetings the Petroleum Minister, Ram Naik, had with the Prime Minister, Atal Bihari Vajpayee, and the Finance Minister, Yashwant Sinha. After meeting Mr. Vajpayee, Mr. Naik said the decision would be taken today, but later indicated that it would be deferred to next week.

Both Mr. Sinha and Mr. Naik told newspersons that consensus had been arrived at on adjustment in excise duty and some increase in prices. The modalities were being worked out and a decision would be taken on Monday, they said.

Mr. Naik said that the excise duty cut was likely to be revenue neutral for the Finance Ministry, as the increase in ex-storage price would fetch more revenues. In addition there had been a higher inflow of customs revenue due to the rise in the international crude oil prices in the last two months.

The oil companies have been seeking an increase in the range of Rs. 1.50 to Rs. 2.50 for diesel and petrol. This is meant to neutralise the impact of the rise of $ 5 a barrel in the price of crude oil over the last two months. IOC, HPCL and BPCL have suffered losses of about Rs. 2000 crores owing to hardening of world prices.

Technically, these public sector companies have been freed from the constraints of the administered pricing mechanism (APM) since April 1, but in fact they continue to be reined in by the Petroleum Ministry as far as pricing is concerned. Mr. Naik has conceded that these companies had been advised to maintain "price stability'' for three months after dismantling the APM, keeping the consumers' interests in mind.

Till yesterday, Mr. Naik had, in fact, been saying that the companies have sufficient profits to sustain the losses. The effort was clearly to avert a price hike at a time when war clouds were gathering on the horizon. But it was evidently decided to go ahead with the price increase now, as higher demand for these products due to any crisis could worsen the situation for the oil companies.

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