Govt to partly roll back bulk diesel deregulation

Just ten months after deregulating the pricing of diesel sold to bulk buyers, the government is set to roll it back partially by allowing sale of the fuel to state-owned transport utilities at subsidised rates.

The oil ministry has already prepared a Cabinet note to bring back the stateowned transport companies under the subsidised regime and the Cabinet is expected to take the decision in its next meeting.

"For STUs (state transport undertakings) we are thinking of rolling back the higher price," a senior oil ministry official told Cogencis. "Our view is that it is regressive." "We have prepared a Cabinet note and it will be circulated soon. The matter will be taken up at the next Cabinet meeting," said the official, asking not to be named.

Shares of state-owned oil companies came off highs following the news.

While the absolute subsidy burden following the partial rollback will increase only by 25 bln rupees annually at the current price, the move is seen as a step back on the government's stated path of deregulating diesel prices. The government has estimated a revenue loss of 1.4 trln rupees on subsidised fuel in 2013-14 (Apr-Mar), most of which is on account of diesel.

Oil Minister Veerappa Moily has been talking about fully deregulating diesel prices within the next six months and there were even talks of a onetime hike to reach that goal.

"If the government is again subsidising diesel for the STUs, it indicates that deregulation is unlikely anytime soon," an analyst with a domestic brokerage said.

The government seems to have changed its mind ahead of the general elections in the middle of 2014, as rising fares in public transport could play a big role. "For one, the STUs are already running in losses. The second reason is they are in public transport, so while for SUVs (sport utility vehicles) you are giving a subsidy the poorer public is being charged more," the official said.

Also, most state transport companies are not buying diesel in bulk anymore and prefer to fill up directly from pumps where it is sold at subsidised rates.

"What was happening was, they were not buying in bulk anymore and were going to retail outlets to tank up. So they clock a lot of dead mileage."

In January this year, the government allowed stateowned fuel retailers to sell diesel to bulk consumers like defence, railways and state transport undertakings at market rates, which currently is almost 10 rupees a litre higher than the subsidised rate.

Of around 70 mln tn diesel sold in 2012-13 (Apr-Mar), around 14 mln tn was sold to bulk consumers. Of this, state-owned transport firms accounted for around 2.1 mln tn. - Cogencis