Fear of creating discrepancies with different fuel prices

State-owned oil marketing companies have decided to increase the price of diesel by Rs 5 per liter, keeping retail prices unchanged for wholesale consumers. This is expected to create huge discrepancies in the fuel market. After this, questions will also arise about price reform. Last week, three state-owned companies, Indian Oil, HPCL and BPCL, which account for 50 per cent of fuel sales, hiked fuel prices for wholesale consumers such as public transport buses, industries, airports, malls and Indian Railways. In Mumbai, the price of diesel for wholesale consumers has gone up to Rs 19.05 per liter while retail consumers are getting petrol at Rs 2.15 per liter at the pump. In Delhi, the prices are Rs 115 and Rs 2.5 per liter respectively. Of course, the Russia-Ukraine war caused a sharp rise in crude oil prices and so this rise was also long overdue. Doubling the rate for diesel is a retaliatory measure and is detrimental for a number of reasons. Prices at petrol pumps have long been stable. In addition, the loss of oil marketing companies is expected to increase even if government revenue is not harmed as fuel taxes have not been reduced. Instead, oil companies were asked to offset their marketing losses by increasing inventory gains and gross refining margins in the crude process due to the possibility of post-election price increases. But oil companies' gross marketing margins have been negative for several weeks as crude oil prices have risen sharply from ડિ 70 a barrel in December. The losses have increased in the last one month as wholesale consumers like buses and trucks have started buying oil from retail pumps out of fear of price hike instead of buying oil directly from oil marketing companies.

As a result, sales soared by about 50 per cent this month, hurting not only the oil marketing companies but also the country's logistics and supply infrastructure. This experience points to a potential problem that will arise in the coming days due to the double pricing regime.

In fact, an unofficial market could be created where retail diesel would go to a higher priced wholesale market and the losses of companies would increase. It is also not clear how inflation will be controlled by keeping retail prices low amid a steady rise in crude oil prices. Because after a 20 per cent increase in fuel prices, transport service providers will have to raise prices.

The ban on retail price hikes will force private oil companies to keep prices as low as government companies. If they do not, their customers will be removed. Given the dominance of the government, the competition commission is unlikely to face any challenge. But from a political point of view, the change in fuel prices will affect the prospects for disinvestment of Bharat Petroleum. Market discrepancies are not a step to reassure investors.