The public sector oil refiners, which have been left poorer by Rs 8,000 crore this fiscal after the partial hike in petrol, are now gearing up for more bad news on the diesel pricing front.

Indications are that the Empowered Group of Ministers (EGoM), scheduled to meet in the coming days, will recommend a Rs 4/litre increase in diesel when the actual losses are over four times as much. In the process, this will shave off barely Rs 30,000 crore of the projected Rs 116,000 crore losses in 2011-12.

This is not all. A marginal hike in diesel prices will do little to bridge the gap with petrol, which is already Rs 30/litre.

“Even if this comes down to Rs 26 (a litre), diesel will still emerge the more attractive option from the viewpoint of operating costs in a car,” sources said. The danger, though, is that rapid dieselisation in the automobile segment will led to higher losses at the refiners' end.

The logical solution is to increase diesel prices at one go by Rs 15/litre except that this will catapult inflation numbers into another orbit and ensure that the India growth story comes to a premature end. It is not as if customers, who drive around in expensive cars and sport utility vehicles, cannot afford to pay more for diesel. The biggest problem will come in the goods carrier space where higher fuel costs will play havoc with commodity prices.

Little wonder, therefore, that India's hydrocarbons pricing policy has caused huge problems across constituents. The trio of IndianOil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation feel short-changed in this entire subsidy drama. The Finance Ministry, meanwhile, is in no mood to dole out cash compensation to the refiners while conveniently forgetting that a large part of its revenue comes from duty levies on petroleum products.

The upstream oil companies, led by ONGC, are miffed that they have to bear a third of the refiners' fuel losses as part of the subsidy sharing formula. This outgo will only increase this fiscal with losses of diesel, cooking gas and kerosene projected at over Rs 180,000 crore. And, finally, the customer would constantly complain that he is the victim of the Centre's whimsical policies.

“Quite unlike earlier years, the harsh reality today is that energy is not going to come cheap. The oil refiners are bearing the brunt of this subsidy system when, in reality, they are in a better position to take care of fuel pricing,” an industry veteran said.

This worked like a charm some years ago when IOC, HPCL and BPCL ensured that there were only marginal increases in auto fuel prices each month so that the customer would not feel the pinch. In the process, there were occasions when prices were also reduced keeping in line with global trends.

“If this system had continued, nobody would be complaining about one-off hikes because this would have already happened in phases. The Government should steer clear of pricing issues and allow the refiners to handle them,” an oil sector official said.

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