New Delhi: India decided to free prices of gasoline and diesel, saying they would be market driven in line with a panel's recommendations, to cut fuel subsidies and limit losses of state-run refiners including Indian Oil Corp.
A panel led by Finance Minister Pranab Mukherjee also agreed to increase prices of cooking gas and kerosene, which will continue to be under government control, Oil Secretary S. Sundareshan told reporters in New Delhi.
Diesel prices are being raised by Rs2 a litre for now and the fuel will eventually be freed from state control, he said.
Gasoline has been freed fully and prices will be increased by "about Rs3" a litre, Oil Minister Murli Deora said.
Prospects of improved profitability from free pricing and expanded fuel retailing by private refiners boosted their shares. A lower fuel subsidy bill may help Prime Minister Manmohan Singh reduce the fiscal deficit to 5.5 per cent of gross domestic product this financial year from an estimated 6.9 per cent last year.
"This is a game-changer for the sector," said Saeed Jaffery, a Mumbai-based analyst with Ambit Capital Pvt. "This should also help Reliance Industries and Essar Oil to roll out their retail networks again."
Outlets closed
Non-state companies including Reliance Industries, the nation's biggest refiner, and Essar Oil mothballed their gasoline outlets nationwide after they were unable to match prices offered by state-run rivals as crude soared to a record in 2008.
State-run refiners had their biggest gain in more than a year. Indian Oil, the nation's biggest state-owned refiner, soared 11 per cent, the most since May 21, 2009, to Rs377.95 in Mumbai on Friday. Bharat Petroleum gained 13 per cent and Hindustan Petroleum surged 14 per cent, both rising the most since May 18, 2009. The benchmark Sensitive Index fell 0.9 per cent.
"Oil and gas companies, which have been pretty undervalued, are now poised to make a comeback," said Mahesh Patil, who manages about $3 billion in equities at Birla Sun Life Asset Management in Mumbai.
"We will see their true potential now."
State-owned refiners can start considering selling shares as their stocks may be fully valued, Sundareshan said. The decision may also help non-state refiners to open their retail outlets, he said.
Essar Oil, which owns 1,300 retail fuel stations in India, said the consumer will benefit through competitive pricing and better services offered at outlets. "We already have in place plans to increase significantly the number of our retail fuel outlets," Naresh Nayyar, CEO of Essar Oil's parent company Essar Energy, said in a statement.
Level-playing field
"This decision creates a level playing field between government-owned and private-sector fuel retailers."
Reliance Industries gained 1 per cent to Rs1,062.95 and Essar Oil climbed 6.4 per cent to Rs137.65 on Friday.
The increase in gasoline and diesel prices is the third this year. The government raised auto fuel prices for the first time on February 27 after Mukherjee imposed import duty and excise tax on crude oil and refined products.
State refiners were then allowed to increase rates on April 1 after they started selling Euro IV-compliant motor fuels.
The current price of gasoline in Delhi is Rs47.93 a litre, according to Indian Oil's website. Diesel costs Rs38.10 a litre. A government-appointed panel headed by Kirit Parikh, a former member of the nation's Planning Commission, recommended in February that India free gasoline and diesel prices from state control and increase kerosene and cooking gas rates.
Is this a step in the right direction? Do you see this increasing the cost of living in India?
