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Diesel Price Deregulation to Revive Hopes of Ailing Automobile Industry

Published: 20th October 2014 06:00 AM  |   Last Updated: 19th October 2014 10:29 PM   |  A+A-

HYDERABAD: On the face of it, deregulation of diesel prices, will lower transportation costs leading to a possible price revision of essential commodities like fruits and vegetables, reduce power prices albeit marginally, revive hopes of the ailing auto industry and intensify competition among oil marketing companies to step up gas on fuel retail business.

From now on, diesel prices will be revised every six months in line with international prices, where brent crude fell 25 per cent this year to about $83 per barrel. As per expectations, it may not cross $100 barrel anytime soon. But if global prices rise, costs will naturally shoot up.

According to the Indian Foundation of Transport Research and Training, truck rentals will fall 3-4 per cent, which could be passed on to end consumers.

Similarly, power prices are likely to fall 50-60 paise per gas unit purchased. It may be noted that the then UPA government had proposed to pool imported gas with domestic to keep the production costs under $5.5 per mBtu. If gas supplies do improve, a higher proportion of domestic gas can be mixed to the pool further lowering production costs. Currently, only 16,000 mw of total 24,149 mw gas power capacity, receives less than 30 per cent of the requirement from the domestic market.

Diesel deregulation may impact power and fertilizer prices, apart from piped gas consumers as, industry experts say, increase in gas prices raises urea production costs, power tariffs, CNG prices and piped natural gas prices. And any reduction will result in lower costs.

According to Dinesh K Sarraf, CMD, ONGC, every $1 rise in gas price increases its revenues by Rs 4,000 crore and net profit by Rs 2,350 crore. An almost $2 increase in gas price will result in ONGC net profit going up by about Rs 4,700 crore on an annualised basis. For the five months of current fiscal, ONGC will stand to benefit about Rs 1,950 crore.

ONGC is likely to get Rs 1,950 crore in additional profit this fiscal from the 46 per cent rise in natural gas prices announced by the government on Saturday.

Fuel price deregulation was first coined almost two decades ago. A decade later, the NDA government freed petrol and diesel prices but the UPA government reversed it in 2004. However, in 2010, petrol prices were deregulated.

Meanwhile, diesel accounts for over 45 per cent of the gross under-recoveries for oil companies. Every $1 fall in crude oil prices will reduce the country’s import bill by about Rs 3,700 crore. As per estimates, the revenue loss on selling diesel, LPG and kerosene at prices lower than imported cost this fiscal will be about Rs 86,080 crore, lower than the previous fiscal’s Rs 1,39,869 crore.



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