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The Prices of petrol (motor spirit) and diesel were increased on 21st of this month.
The following is a backgrounder on the reasons necessitating this increase :
Import Dependency
India is highly oil import dependent, with about 76% of crude processed in the Indian refineries being imported.
MMT
Particulars
2001-02
2002-03
2003-04
2004-05
Crude Processed
106.5
110.6
118.7
124.3
Imported
78.7
82.0
90.4
94.9
Per Cent
74%
74%
76%
76%
India being oil import dependent, it is natural that product prices reflect international oil prices as refineries need to pay international oil prices for crude imports.
International Crude Prices
Benchmark crude prices have reached unprecedented levels during June 2005. WTI crude crossed $59 per barrel on 20th June 2005 as against $36.53/bbl during April 2004.
Indian basket of crude prices averaged $51.80/bbl in June 2005 (1st to 21st June) or about 222% of March 2002 price of $23.31/bbl.
Indian basket of crude prices were 44% higher in June 2005 (1st to 21st June) than those prevailing in May 2004, when the UPA Government took over.
Higher Import Bill
Crude imports were valued at Rs.1,17,032 crores for the year 2004-05 (for crude imports of 95.86 MMT) as against Rs.83,528 crores (for crude imports of 90.43 MMT) during the year 2003-04, an increase of 40%.
International Product Prices and Retail Selling Prices (RSPs)
No change has been made in case of PDS Kerosene, even though international prices of kerosene have risen to $66.49/bbl in June 2005 (1st to 21st June), an increase of 181% from $23.65/bbl since March 2002, when the last price change was made. PDS Kerosene requires an increase of Rs.11.37/litre at Delhi and yet no change has been permitted.
While international LPG prices have risen to $394.80/MT in June 2005 (1st to 21st June), currently from $194/MT in March 2002, an increase of 104%, but domestic LPG retail price has been raised in November 2004 to Rs.281.60/cylinder from Rs.240.45/cylinder as on 1.4.2002 at Delhi, an increase of 17%. As against required increase of Rs.122.70/ cylinder in domestic LPG in Delhi, no increase has been made.
RSPs of diesel have been adjusted by 7.6% in June 2005, though international prices have risen by 28% (1st to 21st June) since the last price change in November 2004. The price increase required for diesel in Delhi was Rs.5.13/litre, whereas the increase has been restricted to Rs.2/litre.
RSPs of petrol have been adjusted by 6.6% in June,2005, though international prices have risen by 11% (1st to 21st June) since the last price change in November 2004. The price increase required for petrol in Delhi was Rs.4.68/litre, whereas the increase was restricted to Rs.2.50 per litre.
PSUs require investable surplus
Price increase is necessary to keep our oil PSUs healthy and maintain their ability to service the nation. Oil marketing companies namely IOC, BPC and HPC have shown much lower profits in the year 2004-05 as compared to 2003-04.
As per Mashalker Committee recommendations on Auto fuels, refineries are required to start supplying Euro III fuels by 1/4/2005 and Euro IV by 1/4/2010. To meet the proposed new environmental friendly norms, refineries have already invested Rs.12,000 crores and are in the process of further investing another Rs.18,000 crores.
Marketing companies need funds to strengthen existing marketing networks for sustaining supplies to growing oil demand.
Upstream companies require funds to discover oil domestically and to acquire equity oil abroad to enhance oil security. Besides large investments are required for setting up gas and LNG infrastructure.
India provides a much larger subsidy than its neighbours
Even after the current price increase, India provides a much larger subsidy in prices of PDS Kerosene and domestic LPG (except Pakistan) than neighbouring countries in the sub continent.
Product
India (Delhi)
Pakistan (Karachi)
Bangladesh (Dhaka)
Sri Lanka (Colombo)
Nepal (Kathmandu)
Kerosene (Rs./Lt.)
9.05
20.45
17.79
13.26
21.26
LPG(Rs./Cyl.)
294.75
233.12
349.86
390.24
500.24
RCJ/VP/ kc/ Backgrounder-Petrol & Diesel
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