Will sharpest petrol hike ever, last just eight days?

After announcing the sharpest increase in petrol prices - Rs 6.20 without the state tax effect - on 23 May, it seems that state-run oil marketing companies are ready to cut the price of the fuel by about Rs 1.67 per litre on 1 June when they undertake a ‘price review’, according to a report in The Economic Times.

If that’s true, the steepest petrol price hike ever would have lasted for precisely eight days.

State-run oil marketing companies claim that globally, since oil prices have cooled from the $125 a barrel seen in March to around $100, there is room to cut product prices. In fact, given the very vocal outrage that greeted the price hike, they seem almost eager to cut prices – without labelling it a ’ partial rollback’.

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“We will pass on the entire benefit to consumers. I would like to pass on 50 paise, 70 paise or 90 paise, whatever we gain, to consumers in the next pricing cycle,” Indian Oil Corporation (IOC) chairman RS Butola said, according to the newspaper.

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Some cynics would argue that they rightly should. Because the fact is, despite their whining about losing money on selling fuel (IOC recently claimed that it lost Rs 1,056 crore over 50 days because of selling petrol at below-market prices), state-run oil marketing companies have made jaw-dropping profits in the March-ending quarter.

Helped by cash subsidies and payments from other state-run companies to compensate for the losses made from selling fuel at below-market prices, IOC’s net profit jumped three-fold to Rs 12,670 crore for the quarter, while BPCL’s profit nearly quadrupled to Rs 3,963 crore. HPCL’s net profit also jumped more than 300 percent to Rs 4,631 crore from a year ago.

Oil and Natural Gas Corp (ONGC), despite its subsidy-sharing burden, also managed to post a 102 percent jump in net profit to Rs 5,644 crore for the January-March quarter.

You have to admit, it’s hard for ordinary folk to feel sorry for ’losing money on petrol and other price-controlled fuels’ companies when they’re showing super surges in quarterly profits, even if with government help. (Although, to be fair, most of these companies have shown sharp drops in profit for the full year ending March 2012). It also makes you wonder why they opted to hike petrol prices right now.

Since petrol is not even subsidised by the government, a hike in prices will not even cut the bulging subsidy bill. If anything, it might increase the subsidy burden because it further shifts demand to diesel, which IS subsidised by the government.

In addition, the government has stated that it has no intention of hiking the prices of diesel, LPG or kerosene (which are bigger problems than petrol in terms of subsidies) in the near future, so it’s hard to fathom why petrol was singled out for a price hike.

Well, we’ll all have plenty of time to mull over that while queuing at the petrol pump.