'Cut in fuel prices will increase losses to 300 cr'

Mumbai, Feb 21: A cut in fuel prices announced by the Government to arrest inflationery pressures will increase the loss on auto fuel sales by a whopping Rs 300 crore, Crisil Research said here today.

The Union Government had last week cut the prices of petrol by Rs 2 and that of diesel by Re 1 per litre.

Crisil Research, in its report ''Impact Analysis: Revision of Auto Fuel Prices'', says that on account of the price revision, the margins on auto fuel would slip to a negative Rs 1.87 per litre, without taking into account the latest price revision.

''This move will therefore result in the under-recovery on auto fuel sales worth Rs 300 crore,'' it said.

In 2005-06, the sector clocked an average margin of negative Rs 1.48 per litre. Even though crude oil prices have spiraled by nearly 11 per cent year-after-year globally, retail domestic product rates have not been aligned to reflect this rise, analysts pointed out.

''Consequently, besides the pressure on gross refining margins, this is the key reason for the industry to report higher losses of Rs 19,100 crore in 2006-07 and Rs 8,900 crore in 2005-06,'' the report said.

It estimates that the subsequent incremental burden on the government will be around Rs 300 crore.

''Along with this, the financial assistance that was required prior to the price revision, adds up to Rs 600 crore. The government may now issue oil bonds of Rs 400 crore, with the balance to be borne by the upstream players,'' the report predicts.

Experts point out that last week's price cut was the second such reduction in less than three months. Prior to Nov 2006, the retail prices of petrol and diesel were hiked by Rs 4 per litre and Rs 2 per litre, respectively in June 2006 to partially negate the impact of rising crude oil prices, which eventually touched a high of USD 74 a barrel in July 2006.

''The Government has now completely reversed the price hikes affected in June 2006, with the two subsequent price revisions,'' the report observed.

Consequently, for the full year 2006-07, the total burden on the government, in spite of the price cut is likely to be around Rs 19,500 crore, which is nearly 30 per cent lower than its earlier estimate of Rs 28,000 crore worth of oil bonds it had to issue this year, the report added.

UNI

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