This petrol price increase reiterates the Government’s plan to deregulate gasoline with the state-owned oil marketing companies (OMCs) raising prices regularly in order to keep them in line with the international parity prices. Moreover, the Central Bank Governor has mentioned, in various forums, that regular fuel price increases are needed to control the fiscal deficit and to moderate the trend on long term oil demand in controling long-term inflation.
We note that OMCs are currently losing Rs5/litre on diesel, Rs 23/litre on kerosene and Rs 267/LPG cylinder. In our view, the current fuel losses are unsustainable and would likely strain the government’s fiscal targets. Therefore, we believe that the Government could take further measures to reduce these under-recoveries. Incidentally, there is an EGOM (Empowered Group of Ministers) meeting scheduled tomorrow to make a decision on capping the number of subsidized LPG cylinders to 4-6 per family/per year. We estimate this could reduce the full year LPG under-recovery of about Rs300bn by 40%
