Govt to consider fuel price deregulation proposal

The government sets retail prices of petrol, diesel, cooking gas and kerosene to help control inflation and protect consumers, particularly the poor, from sharp fluctuations in energy prices.

"These measures have become essential, because if we don't do it today, your fiscal deficit will go up, your credit ratings be affected, the borrowing cost will go up," said Kirit Parikh, head of the government-appointed panel that recommended the changes.

"So the economy will have to bear the burden one way or the other."

The price-setting policy affects profits of state-run oil marketing companies such as Bharat Petroleum, Hindustan Petroleum and Indian Oil, which are forced to sell fuel at below-market rates.

The government partially compensates state-run retailers for selling fuel at cheaper rates. Upstream state firms Oil and Natural Gas Corp and Oil India are required to sell crude at a hefty discount to ease the pain of fuel retailers, but the costs of these policies weigh on the budget.

"The current system is non-transparent, and it is very difficult for investors to predict these companies' earnings, and so most of them are undervalued," said Maulik Patel, an oil and gas analyst at K.R. Choksey Shares and Securities.

"If the recommendation is accepted, then it will be great for these companies," he said.

Any move to lift the government cap on fuel prices would help Indian energy major Reliance Industries and Essar Oil resume retail sales of oil products, as no compensation mechanism is available for private firms.

Oil Minister Murli Deora said the cabinet would consider the recommendations in seven to 10 days.

"We are very keen... not just a discussion but to see what best can be done for consumers and government," he said.

SCEPTICAL