Updates on fuel price hike

Delay in fuel price hike to make the ground more slippery for oil firms




Mumbai: Even as the empowered group of ministers (eGoM) is expected to meet this week to decide on hiking fuel prices, analysts say every delay in action on prices will be a missed opportunity for the government, at a time when global oil prices are hovering in the $75 a barrel range. A decision to hike the prices will reduce subsidy burden of state oil companies, which is currently estimated at around Rs 65,000 crore ($13.8 billion) for FY 2010-11. Oil marketing companies are keenly looking forward to the June 17 meeting of the eGoM. “Let us see how the meeting goes. Only then will we be able to assess the impact the decision will have on us,” says SK Joshi, director — finance, BPCL. State-owned upstream companies share the burden of subsidies for Indian refiners such as IOC, which loses Rs 110 crore ($23.3 million) a day from the programme. “Lifting current restrictions preventing refiners from selling oil products at market prices would provide greater visibility to cash flows. However, the maximum benefit from deregulation is likely to accrue to producer ONGC, which has borne the highest subsidy burden owing to its larger size and capacity to spin off cash,” said Philipp Lotter, senior vice-president, Moody’s.



Oil prices were up in Asian trade on Monday as a strengthening euro lifted the market. New York’s main futures contract, light sweet crude for delivery in July, gained 96 cents to $74.74 a barrel, while Brent North Sea crude for July delivery advanced 92 cents to $75.27.

This is a good time to raise fuel prices, as global prices are low. Once they go up again, the situation will get tougher,” says Sanket Singh, an analyst with Frost & Sullivan. He said in the medium to long term, oil prices have to go up, despite the prices remaining low at the moment owing to a slow pick-up in most economies. Recently, the government more than doubled natural gas prices to $4.20/mmbtu from $1.80/mmbtu earlier this year and assigned “Maharatna” status to IOC and ONGC, thus giving them greater autonomy for investments.



“The recent increase in the government’s gas price to international levels is likely to raise ONGC’s revenues by Rs 5,500 crore ($1.2 billion) at its current output. Its extension to oil prices would provide respite for state-owned energy companies by significantly reducing the subsidy burden,” Lotter said. Moreover, lower global oil prices provide scope for freeing up domestic ones to match them. Uncapping controls now would raise petrol prices by Rs 3.35 per liter, or 6.9%, and raise diesel by 9.2% or Rs 3.49, he added.

………..MG Arun / The Financial Express newspaper.http://www.financialexpress.com/news/delay-in-fuel-price-hike-to-make-the-ground-more-slippery-for-oil-firms/633700/0