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Fuel price may be cut in Feb, post-deregulation

Further cuts in petrol and diesel prices may happen only in February with the government planning to link those with an imminent deregulation of retail fuel prices, said people familiar with the matter.

, ET Bureau|
Jan 22, 2009, 02.37 AM IST
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NEW DELHI: Further cuts in petrol and diesel prices may happen only in February with the government planning to link those with an imminent deregulation of retail fuel prices, said people familiar with the matter.

The finance ministry and the Planning Commission have opposed the petroleum ministry���s plan to cut retail fuel prices further, arguing that this is the right time for the government to end its control over retail sale prices of petrol and diesel, a government official, who asked not to be named, told ET.

Earlier this month, petroleum minister Murli Deora had said that the retail price of petrol would soon be reduced by Rs 5 a litre, diesel by Rs 2 a litre, and cooking gas by Rs 25 per cylinder. If the prices of petrol and diesel are freed from government control and linked with market, petrol price could be reduced by about Rs 7 a litre, and diesel by about Rs 2.5 a litre, provided duties on the two products do not change, the official said.

���The fuel price cut is expected to be a result of proposed deregulation of petrol and diesel prices. It (deregulation) was proposed in the last Cabinet meeting held on December 10, 2008.

But, it would depend on devising a formula to compensate public sector oil companies for their underrecoveries (losses for selling fuels below the cost) for selling kerosene and cooking gas at subsidised rates,��� another government official, who requested anonymity, said.

The government has made it clear that it will continue to control the retail prices of cooking gas and kerosene.

A finance ministry official, who didn���t want to be identified, told ET that deregulation and consequent cuts in prices of petrol and diesel is expected in the second week of February. ���It may happen before the ensuing Parliamentary session or after it,��� he said. The session is expected from February 12-26.

An official in Indian Oil Corp (IOC), who didn���t want to be named, told ET that his firm was currently making a profit of Rs 7.40 per litre of petrol. For diesel, the figure stood at Rs 2.50. But the company was losing Rs 12.20 on the sale of every litre of kerosene and Rs 33 on the sale of a 14.2 kg cooking gas cylinder, he said.

The finance ministry official also told ET that his department was in favour of reimposing Re 1-a-litre excise duty on unbranded petrol and diesel as international crude oil prices have dropped significantly to around $40 a barrel.
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