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Oil pool deficit touches 80 bn

Mar 3, 2000

The oil pool deficit has touched Rs 80 bn and at this rate of growth could easily touch a level of Rs 300 bn annually. This is primarily due to the fact that while the internationally oil prices have been risen to $30 a barrel the prices of the five regulated products has not been increased. The five products are LPG, diesel, petrol, air turbine fuel and kerosene.

As per a Cabinet decision these prices would be pegged to the international oil prices and raised accordingly. However, the last major hike in prices took place when diesel prices were hiked in October 1999.

This sparked off protests, which lead to the transporters strike. Another hike now would be politically explosive apart from fueling further inflationary pressures in the economy.

A long term solution to this problem is imperative since despite the prices being pegged to international prices the government is finding it difficult to increase prices. This solution could only be in the form of deregulating these prices and allowing the oil companies to fix a price for these commodities.

The impact on the margins of the refinery companies is equally adverse. While the companies are paying the international prices for these products they have not been allowed to increase end product prices. Though the reduction in the import duty of crude from 20% to 15% would provide some relief it would not be enough to save refining companies’ bottomlines over the medium term.

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