Friday, July 22 2005 14:05 Hrs (IST) - World Time -

New Delhi: Government will review petrol and diesel prices if oil companies continue to suffer cash losses even after last month's fuel price hike.

The Rs 2.50 per litre increase in petrol price and Rs 2 a litre hike in diesel price on June 21, 2005 was not sufficient to cover for the spurt in international oil prices and increase in duties, a top official said today (July 22, 2005).

"Petrol is currently being under-priced by Rs 3 per litre and diesel is being sold at a loss of Rs 5.30 a litre. There are huge under-realisations and if these translated into cash loss (loss before taxes), a review of fuel prices is must," he said.

Bharat Petroleum Corp, Hindustan Petroleum Corp and IBP, which made cash loss of about Rs 700 crore due to price freeze in April-June, may still be making cash loss. However, Indian Oil Corp, the country's largest oil firm, may just be able to avoid cash losses due to its depreciation policy.

Petroleum Minister Mani Shankar Aiyar said, "There is an apprehension that in these four weeks (after the price hike), oil companies may have made cash losses."

"The June 21 price hike was affected so as to avoid cash losses," he said. "However, if cash losses continue, than a review may be done."

Aiyar had yesterday (July 21, 2005) met Finance Minister P Chidambaram, who asked for specific numbers of cash losses suffered by oil companies after the June 21 price hike, for a review.

"We had gone to meet the Finance Minister for some other purpose but we also raised the issue of oil prices. He asked us to check if oil companies were making cash losses even after last month's price rise," the official said.

Though the spike in global oil prices and increase in duties warranted a hike of Rs 4.68 per litre in petrol, the Government last month settled for Rs 2.50 a litre increase. Similarly, on diesel the hike announced was only Rs 2 per litre despite the necessity of Rs 5.13 per litre.

"International oil prices have firmed up since," he said.

Aiyar said last month's price hike was based on three principles - "there must be no cash loss (to companies), we must be able to maintain equity on dividend and be able to generate investible surplus."

A month after the price hike, "We have to see if we have been adhering to these principles," he said adding, "Projections would be made of a scenario for the complete year assuming global oil prices remained unchanged at present highs of $60-62 a barrel.

Aiyar said a selected group, headed by Economic Advisory Council Chairman R Rangarajan, which had last time gone into the issue of price revision, may review the prices if oil firms report cash loss.

The group had representatives from Ministries of Finance and Petroleum and Planning Commission.