India Delays Fuel Price Decision Amid High Inflation

June 8 (Bloomberg) -- India delayed a decision to raise prices of fuels including gasoline and diesel on concern higher costs will stoke inflation, already running at the fastest clip among the Group of 20 nations. Shares of state refiners fell.

Ministers led by Finance Minister Pranab Mukherjee met yesterday to discuss a recommendation made by a panel in February that India free gasoline and diesel prices from state control and increase kerosene and cooking gas rates. The ministers are likely to reconvene in 10 days, Oil Secretary Sthanunathan Sundareshan told reporters in New Delhi.

Raising prices will help the government cut expenditure on fuel subsidies, which were 260 billion rupees ($5.5 billion) last year. India, which more than doubled prices of natural gas sold by state-run Oil & Natural Gas Corp. and Oil India Ltd. last month, is seeking to limit losses of state refiners that help cap inflation by selling fuels below cost.

“Sooner or later, they will have to take a call as they can’t allow refiners to continue to suffer losses indefinitely,” said Mridul Saggar, a Mumbai-based economist at Kotak Securities Ltd. “At this moment, political-economic compulsions are weighing on policy makers.”

The ministers concluded that further discussions are needed before they can reach a decision, according to a government statement yesterday.

Euro IV Fuels

The government increased auto fuel prices on Feb. 27 the first increase this year, after Finance Minister Mukherjee imposed import duty and excise tax on crude oil and refined products. State refiners were then allowed to raise rates on April 1 after they started selling Euro IV compliant motor fuels.

The current price of gasoline in Delhi is 47.93 rupees a liter, according to Indian Oil Corp.’s website. Diesel costs 38.10 rupees a liter.

Indian Oil, the nation’s biggest state-owned refiner, declined as much as 6 percent to 322.25 rupees in Mumbai trading today and was at 333.50 rupees at 9 a.m. local time. Bharat Petroleum Corp. fell 3.1 percent and Hindustan Petroleum Corp. dropped 2.7 percent. The benchmark Sensitive Index gained 0.2 percent.

Crude oil for July delivery climbed as much as 30 cents to $71.74 a barrel on the New York Mercantile Exchange, and was at $71.59 at 10:15 a.m. Singapore time. Crude has declined 13 percent this year, reducing revenue losses of Indian state refiners and giving the government room to raise prices by a smaller amount.

Inflation

Indian Oil is still hopeful that gasoline and diesel prices may be freed from government control, Chairman and Managing Director B.M. Bansal said in New Delhi yesterday. The refiner is losing 1.1 billion rupees a day on fuel sales, he said.

The inflation rate for industrial workers in India climbed more than 13 percent in April, while prices paid by farm workers rose about 15 percent. This compares with inflation rates of 2.2 percent in the U.S., 1.5 percent in the euro zone and 2.8 percent in China.

India’s Oil Minister Murli Deora said in May last year that he would seek Cabinet approval for lifting a cap on retail prices of gasoline and diesel.

India last removed prices of oil products from government control in April 2002, giving state-owned refiners freedom to set retail fuel prices twice a month. That stopped in December 2003 after the then Bharatiya Janata Party-led government barred them from raising rates before the May 2004 elections.

Chinese Refiners

Refiners in China, the world’s second-biggest oil user, are assured of profits because they can adjust gasoline and diesel prices when oil changes by 4 percent over 22 working days.

Indian refiners depend on government bonds and discounts on crude from ONGC and other state-run explorers to compensate for losses from selling fuels at fixed prices.

China cut gasoline prices by 230 yuan (34 cents) per ton and diesel by 220 yuan a ton starting June 1, the National Development and Reform Commission said.

India will support the Group of 20 leaders on withdrawing subsidies for fossil fuels “over time,” Shyam Saran, then the country’s special envoy on climate change, said during the Group of 20 meeting in Pittsburgh in September.