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Energy: The leak in the pool - Views on News from Equitymaster
 
 
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  • Sep 13, 2000

    Energy: The leak in the pool

    Crude oil price have scaled post war peaks to rise above $ 34 per barrel. This is despite the production hike announced by the Organisation of Petroleum Exporting Countries (OPEC) on September 10.

    The surging prices harm the Indian economy as we import 70% of our crude requirement. With the current rise not expected to bring down prices to a comfortable level ($22 - $28 / barrel) the Government is planning to hike the prices on certain petroleum products.

    Petrol prices are most likely to be hiked, although it cross-subsidizes other fuels, as this vote bank never complains. However, as per the deregulation schedule, it should be reducing the subsidy on diesel, kerosene and liquid petroleum gas (LPG). In fact, the Government had stated it would link the price of diesel to import parity from '98 onwards.

    (bn litres) HSD Kerosene
    Annual Consumption 45.6 12.5
    Subsidy/Litre (Rs) 3 5
    Total Subsidy (Rs) 136.8 62.5
    Drain on oil pool 199.3  
    * Based on cylinder sales
    # no's are estimates
    We take a look at what is causing the leak in the oil pool account.

    As per reports the oil pool deficit is expected to breach Rs 160 bn if oil prices remain at current levels. The subsidy element on diesel and kerosene alone puts a burden of Rs 199 bn. If we include the subsidy on LPG this burden will increase.

    If the Government takes a more pragmatic stand then prices of diesel should be increased as it is the biggest drain on the oil pool.

     

     

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