Diesel prices will be deregulated in six months with gradual price increases, Oil Minister M Veerappa Moily said today.
"In six months, diesel sector will be deregulated," he said at the KPMG Energy Conclave here.
State-owned fuel retailers, who control 95 per cent of the petrol pump sales, sell diesel at government-fixed rates, which are way lower than the cost of production.
The government had in January this year allowed them to increase the price by up to 50 paisa a litre every month as part of a plan to gradually remove the subsidies given on the fuel.
"Under-recoveries (losses on diesel sales) had come down to Rs 2.50 because of monthly increases but they soared to Rs 14 as rupee depreciated sharply. Currently, under-recoveries on diesel are at about Rs 9.28 per litre," Moily later told reporters.
He said the monthly increases in rates will continue as planned and there was no plan for a one-time steep hike of Rs 3 or 4 per litre to bridge the gap.
At current rates, it will take 19 months to wipe off all the losses on diesel sales. But Moily is pinning hopes on rupee appreciating and international oil prices cooling down for reducing this time window to 6 months.
The government had in June 2010 freed both petrol and diesel prices from its control. While petrol price have moved in tandem with cost barring occasional exceptions, diesel rates have not been aligned with cost.
Fuel prices were last revised on November 1 when petrol rates were cut by Rs 1.15 a litre on rupee appreciation while diesel price was hiked by 50 paisa.