Guess who's smiling at govt's flawed fuel pricing policy?

With petrol being 70 percent more expensive than diesel, guess who is rejoicing at the government’s flawed diesel-subsidy regime?

No, not the state-run oil marketing companies who were supposed to be the actual beneficiaries of the rise in petrol prices, but private oil companies Reliance Industries and Essar Oil!

As demand for diesel rises, state-run Indian Oil, Bharat Petroleum and Hindustan Petroleum are rushing to buy more fuel from Reliance and Essar . In effect, the private operators are making tonnes of money by selling fuel in the domestic market – rather than exporting it - and that too at international rates, an Economic Times report pointed out today.They would have suffered losses had they sold the same fuel through their own pumps as they would have to lower theprices to match theirpublic sector rivals.

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“Industry experts say that out of total state-run refining capacity of 120.066 million tonne (mt), about 40 percent output (48 mt) is diesel. But annual consumption in the country is over 65 million tonne, which is met by buys from Essar and RIL at market rates,” said the ET report.

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What this essentially means is that Essar and Reliance can make a quick buck by selling the same fuel in the domestic market, despite having shut some of their pumps when crude oil jumped hit historic highs of$147 a barrel, unable compete to compete withIOC, BPCL and HPCL that were selling at highly subsidised rates.

Last month, state-run oil firms inflicted the aam admi with the highest everincrease in petrol prices even though crude slipped to $100/barrel from $120 a month ago. While a litre of petrol costs Rs 70.24 in New Delhi, the price of diesel is Rs 41 a /Litre. And with the government is hell bent on keeping diesel prices deregulated, the price distortion between the two competing fuels has resulted in dieselisation of the economy.

The crux of the problem is the way the prices of petroleum products are administered. Their productsneither ensure adequate returns to OMCs nor are they free fromthe government’s interference. And now that crude is below $100, the government should grab the opportunity toderegulate diesel and move towards a free-market regime in oil products.

Earlier this week, media reports had suggested that a petrol price cut, and a hike in diesel pricing was imminent as international crude oil prices declined due to uncertainties in Europe. However, the state-run oil firms have decided to “wait-and-watch” the international scenario and the rupee-dollar rate before deciding to cut petrol prices.

There was a scope to reduce petrol price by up to Rs 1.60 per litre but with rupee falling further, the cost of imports has again risen.Oil firms had last cut petrol rates by Rs 2.02 a litre with effect from 3 June in a partial rollback of the steep Rs 7.54 per litre hike effected last month.