Petrol prices slashed by Rs 5, diesel by Rs 2

The government on Wednesday announced further reduction in petrol and diesel prices by Rs 5 and Re 2 a litre, respectively. In second round of cuts in as many months, the domestic LPG rate was also brought down by as much as Rs 25 per cylinder.

The reduction, which will be effective from midnight Wednesday, will help further ease inflationary pressures and benefit common man.

Petrol in Delhi will cost Rs 40.62 a litre instead of the present Rs 45.62 per litre from Wednesday midnight, while diesel will be sold at Rs 30.86 per litre as against current Rs 32.86 a litre. Similarly, a 14.2-kg domestic LPG cylinder will now cost Rs 279.70 in place of Rs 304.70.

"The Cabinet Committee on Political Affairs headed by External Affairs Minister Pranab Mukherjee has decided to reduce petrol, diesel and LPG prices to pass on the benefit of softening international oil prices to consumers," Petroleum Minister Murli Deora said.

While state-run oil firms were making a neat Rs 9.86 a litre profit on petrol before this price reduction and Rs 3.48 on every litre of diesel, they were still losing Rs 32.97 per LPG cylinder and Rs 12.16 per litre of kerosene. The reduction could have been sharper but for the losses on LPG and kerosene.

Petroleum Secretary R S Pandey said no decision on raising excise and customs duty to mop up any extra revenue has been taken. Also, the parallel proposal of freeing petrol and diesel prices from administrative control has not been acted upon.

"The Government," he said, "will made good all of the losses of state-run retailers after accounting for Rs 32,000 crore contribution from upstream firms, through issue of oil bonds."

Deora said, "This is the first time the retail selling price has gone down below the rates in June 2006. There is no inflationary impact at all because of fuel now." Petrol on June 6, 2006 was priced at Rs 47.51 a litre in Delhi, diesel at Rs 32.47 and domestic LPG at Rs 294.75.

"After reduction, petrol in Delhi will cost Rs 40.62 a litre, diesel Rs 30.86 and domestic LPG Rs 279.70 per cylinder," he said.

"We believe in keeping the promises. We had promised to reduce prices when international prices come down and now we have done it. This is a big step that will help common man," Deora said.

2008-09 had witnessed an unprecedented volatility in international oil prices. While on the one hand, the Indian basket of crude oil touched $142 per barrel on July 3, on the other, it plummeted to $35.83 a barrel on December 24.

In spite of the softening in oil prices, the PSU oil marketing companies (OMCs) incurred under-recoveries of more than Rs 106,000 crore during April-December 2008 on sale of petrol, diesel, domestic LPG and kerosene.

To compensate the public sector OMCs, the Government has already approved issue of oil bonds of Rs 60,967 crore and the upstream oil companies - ONGC, GAIL and OIL - have contributed Rs 32,000 crore.

"Whatever is the under-recovery (revenue loss) at the end of the fiscal, will be compensated by the Government through issue of oil bonds," Pandey said, adding more oil bonds could be issued.