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Oil – Gas subsidy pain eases

September 8, 2008

International Crude oil prices have corrected 26% from their July 3 highs on fears of slowing global growth leading to demand destruction.

Subsidies on petrol and diesel are down to Rs2.9/ltr and Rs8.1/ltr, respectively, down from a high of Rs14/ltr and Rs25/ltr. LPG and SKO losses are down 22-25% to Rs262/cylinder and Rs27/ltr. Overall subsidy losses are down 52% from peak level in May-08 to ~Rs91B

If crude stays at US$105-110/bbl for the rest of FY09, annual under-recoveries will come down to Rs1.55-1.60 trillion from over Rs2.0 trillion estimated in early-Jun08, when price hikes and duty cuts were announced. This exactly takes care of Rs400bn unaccounted gap between the Finmin’s bonds allocation vs. Petroleum Ministry’s wish

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