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Oil Minister M Veerappa Moily said today that the government will deregulate diesel prices in six months with gradual price increases. "In six months, diesel sector will be deregulated," he said at the KPMG Energy Conclave in New Delhi.
At present, diesel is sold by state-owned fuel retailers, who control 95 percent of the petrol pump sales, at the rates fixed by the government. The rates are much lower than the actual cost of production of diesel.
In January, the government had allowed the state-owned fuel retailers to increase the price by up to 50 paisa a litre per month. "Under-recoveries (losses on diesel sales) had come down to Rs 2.50 because of monthly increases but they soared to Rs 14 as rupee depreciated sharply. Currently, under-recoveries on diesel are at about Rs 9.28 per litre," Moily later told reporters.
He added that rates will increase monthly as planned, adding that the government was not planning for a one-time steep hike of Rs 3 or 4 per litre to bridge the gap.
At current rates, it will take 19 months to wipe off all the losses on diesel sales. But Moily is pinning hopes on rupee appreciating and international oil prices cooling down for reducing this time window to 6 months.
The government had last revised the fuel prices on November 1 when petrol prices were reduced by Rs 1.15 a litre, while diesel price was hiked by 50 paisa.
"We are already going in that direction (of deregulating diesel prices). (If) rupee appreciates (against the dollar) and international oil prices drop, we will be in a position to completely deregulate," Moily said.
The minister expressed confidence that the upcoming assembly elections in five states and the Lok Sabha polls in 2014 would not affect the monthly revisions in rates. "Don't worry. UPA-III will come back," he said.