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+5Rs Petrol, +3Rs Diesel & +30Rs LPG?

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What is the impact of this going to be? Steep hike in petrol, diesel, LPG prices; PM to address nation http://www.hindu.com/theh... New Delhi (PTI): In the highest ever price raise, the government on Wednesday announced a Rs 5 a litre increase in petrol, Rs 3 on diesel and Rs 50 per LPG cylinder together with customs and excise duty cuts to combat spurt in global oil prices. The hike announced by the UPA government, with less than a year to go for general elections, was met with opposition from its Left allies who announced a countrywide stir. Prime Minister Manmohan Singh will address the nation at 2030 hrs today to explain the rationale behind the hike. "We were left with no option," Petroleum Minister Murli Deora told a packed news conference after a meeting of the Cabinet Committee on Political Affairs that arrived at the decision. State-run Indian Oil, Bharat Petroleum and Hindustan Petroleum would have suffered a revenue loss of Rs 245,305 crore this fiscal without these measures, he said. "Due to the relentless increase in international oil prices, it has now become necessary for the consumer... to shoulder a small part of the increased burden, through a marginal hike in prices." Petrol and diesel prices were last raised in February and the new prices will come into effect from midnight tonight. Crude prices, however, were trading at $ 124.01 a barrel in New York today, down $ 11 from its May 22 peak of over USD 135 a barrel. The government also announced an across the board 5 per cent cut in customs duties, bringing rates on crude to zero, on petrol and diesel to 2.5 per cent and on other products like ATF and naphtha for non-fertilizer use to 5 per cent. Besides, excise duty on petrol has been cut by Re one a litre to Rs 13.45 and on diesel to Rs 3.60. Also see ... A dilemma called oil Vikram S Mehta http://www.indianexpress.... Inter ministerial turf battles, lack of leadership and weakening hold of Central government over state governments have led us to the present stalemate The government does little or nothing to stem the losses being racked up by the public sector oil marketing companies and sooner than later these companies start rationing petrol and diesel. The consequent consumer backlash, particularly from the farmers whose sowing season will have been disrupted, heralds the beginning of the end of this administration. Or, the government does indeed raise prices, rejigs tax rates and whatever else required to pull the oil companies back from the brink of financial collapse. But then in the aftermath, the Left parties withdraw support; the government loses its majority in Parliament and the Congress party is pushed into elections under unpropitious circumstances. High gas prices hit consumers worldwide By ANGELA CHARLTON - 4 days ago http://ap.google.com/medi... Consumers, gas retailers and governments are wrestling with a new energy order, where rising oil prices play a larger role than ever in the daily lives of increasingly mobile people. But as the cost of crude mounts, the effect on the price at the pump varies startlingly — from Venezuela, where gas is cheaper than water, to Turkey, where a full tank can cost more than a domestic plane ticket. Taxes and subsidies are the main reasons for the differences, along with lesser factors such as limited oil refining capacity and hard-to-reach geography that push up prices.

Comments

blrsri's picture

does the math work?

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there was an imminent hike expected from a long time..postponed for various reasons like the karnataka elections etc..

but does the hike really suffice? has the govt really done its math right? or is this an installment approach?

looking at how the international prices growth..the change in our oil prices is marginal..should we expect further corrections?

what ever it is..my idlis at the darshini are sure gonna cost more!

tsubba's picture

cooking

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looks like fuel for cooking is going to be a serious issue. hopefully bmtc also does not hike its prices.
narayan82's picture

expected

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this was expected, and its not going to be the last. We seriusly need to start thinking of alternative fuels!
Narayan Gopalan
User Interaction Designer
Bangalore
Shrivalli's picture

Alternative fuel? rather

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Alternative fuel? rather alternative energy sources(hydrogen vehicle?). That's better than having food crises! http://www.nytimes.com/20...
tsubba's picture

alternate fuels

blrsri's picture

seriously considering going electric

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Newspapers and TV is full of ads for electric 2 wheeler Yo/Hero/Scooty vehicles since yesterday..now these would be seriously considered as alternative..

Also, now further research to make these vehicles better will surely be taken and this will be good for everything...pollution included!

narayan82's picture

EVs and Electricity

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The trouble is, if a lof 2 wheelers starting using EVs then we are gonna start running short of Power! Strnage part is, though the fuel price is always going up, the government has never promoted alternative methods.
Narayan Gopalan
User Interaction Designer
Bangalore
sanchitnis's picture

EVs, electric buses on Hosur road and ORR

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Earlier government was giving sales tax subsidy to Reva. However, after moving to VAT, this subsidy got removed shooting up prices.

The Electric two wheelers are going through the same phase as mopeds when they were first introduced. The constraint to keep the prices low (so that consumers can consider them over petrol vehicles) is impacting the quality also. However I heard after the big players came in (like Hero), they are getting a good market and the current price hike will surely benefit the industry.

In the long term though, public transport is always preferable. many cities around the world still have electric buses which draw power from overhead lines. They do not need BRTS or dedicated lanes. They have good traction. It may be viable to provide such infrastructure on ORR and on the ROB on Hosure Road.

Sanjay Chitnis

 

 

Impose cess on private vehicles

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A cess should be imposed on diesel / petrol consumption by private vehicles.

Ideally, it is best to give more incentives to public transport (buses, metro, trains) than to private transport (motorcycles, cars, SUVs).

A steep increase in excise duty for diesel cars should be implemented. There should be stricter emission and effeciency standards for diesel lorries and trucks.

But the best solution for Bengaluru's traffic crisis if a cess is imposed on the burgeoing two wheeler population in the city. BBMP should moot a cess of about Rs. 50 (yes, the same cost per litre of petrol) on every litre of petrol brought by two wheelers. This cess can be given as subsidy to buses. 

narayan82's picture

ration petrol

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i was anticipting the day when Everyone is given a quota of subisidies petrol. Hence like a ration card a petrol card can say allow a two wheeler to 10 litres a month (say). This wil firstly teach people to ride economically and also use it only when essential.
Narayan Gopalan
User Interaction Designer
Bangalore
s_yajaman's picture

Agree in principle with MCadambi

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Agree in principle with MCadambi.  This was a great opportunity for the government to deregulate petrol prices.  The same protests will be there whether the price hike is Rs.10 or whether it is Rs. 5.

Bangalore alone sees petrol sales of 280 million litres each year.  With a Rs.5 cess the govt can raise Rs. 140 crores - enough to fund 300 buses or 2 km of Metro.  It will also make people at least think once before they start their cars.

The other issue is that cars and bikes are much more affordable now w.r.t annual salaries.  In 1999 I bought a santro.  It cost me Rs. 3.45 lakhs.  Let us say it was X months of my salary then. 

Today a Santro costs about the same - Rs. 3.6 or Rs. 3.7 lakhs. 

If I had stayed on in my company this year - that X months would be X/6 or X/7 months.  From my income pov a Santro is  cheap.  It is cheap even at Rs.6,00,000.

The government needs to put a tax of Rs. 200,000 on each car bought - because people can afford it.   We sell 1 million new cars in India each year.  This means about Rs.16000 crores additional revenue each year which can be used for Metro projects (car sales will fall and so I project only 800,000 car sales).   

Excise duties on diesel cars should be hiked significantly - else subsidized diesel is going to 1800 or 2000 cc luxury cars.

All these will remain wishes because no govt can take on the car lobby like this.

 

Srivathsa

Drive safe.  It is not just the car maker which can recall its product.

narayan82's picture

srivatsa - ideal but what lobbies?

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The car concept sounds good. It is cheap in a way. But honestly will the Car Makers Lobby allow such a processes to come through? Also this will have PILs filed against it, and soon it will be one of those looooong pending cases. Question is what is a solution which will be welcome while being opposed..!!
Narayan Gopalan
User Interaction Designer
Bangalore
narayan82's picture

Qs at Petrol Station

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This doesnt seem to be within my understand - does anyone else feel so? Yesterday/Last night there was a MAD rush at th petrol stations. I was low on fuel and so needed to tank up but gave up after a few tries. I thought to myself - how much fuel can you tank up. Say you are on a bike - in reserve - probably about 10 litres (max). So you will be saving Rs.50/- For a saving of Rs 50 - once in a lifetime - why would someone stand hours in que, create miles of traffic jam and maybe even skip dinner! Again look at it w.r.t a car - he probably saves Rs.200, and compared to the 1000/- per week that is spent anyway!
Narayan Gopalan
User Interaction Designer
Bangalore
s_yajaman's picture

Exactly Tarle

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If you watch TV here, all the car companies are already talking about declining sales and how tough life is going to be for them.  They want business as usual at any cost. 

The same crisis will repeat next year and the year after next.  The problem is structural and no cosmetic steps will work.  If the government is banking on the fact that oil is going back to $70 or $80 they might find they are mistaken.  At some point the oil companies will again face insolvency and then the govt will have a crisis on its hands.  Remember that this whole economic liberalization took place in the 90s only because India had forex enough for only 15 days of imports and we had to pawn the family gold to Britain.

Inflation is going to hit us - whether because of higher fuel prices or because of fiscal deficits due to the govt printing money to pay oil companies. 

We are due to live in some very interesting times.

Srivathsa

Drive safe.  It is not just the car maker which can recall its product.

s_yajaman's picture

Queues - illogical, but...

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I guess it is just to feel some satisfaction that you have saved some money.  I didn't bother myself.  As you said - the maximum impact would have been Rs.150 or so.  To spend 1 hr jostling in a queue did not seem appealing to me.

Srivathsa

Drive safe.  It is not just the car maker which can recall its product.

blrsri's picture

thorium reactors

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"India should seek nuke self-reliance through thorium" Kalam went saying..one leader who could foresee!
Naveen's picture

Increasing Costs May Not Work

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I dont beleive that a steep hike in car costs or fuel costs will result in a decline in car use, even if such steep increases were possible. This is because there is no other dependable, convenient substitute for commuting, at present.

Until convient public transport & other forms of dependable mass transport are in place, such increase in costs for 2-wheelers & cars may not be effective.

The reduction in traffic will only be marginal & might unnecessarily lead to volatile situations.

 

bangalore-guy's picture

why is diesel subsidised.

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Because the govt still thinks that it is being used by poor farmers and public transport vehicles. Whereas it has become the choise of fuel for people driving swanky SUVs and Luxury vehicles. I am not sure why does govt not deter the use of diesel if it really wants to keep its price low and to be used for farming and public travel. Why doesnt the govt introduce huge duties on diesel engine cars ??

If the use of diesel in cars/suvs can be stopped the demand for diesel will drop significantly and then it will be easier for the govt to keep the price of diesel much lower. And increase the price of petrol as per the market rates. Because it is much more politically sensitive to increase the price of diesel than it is to do the same for petrol. And rightly so.

Moreover if the  price of diesel can be kept low (by reducing the demand by cars and suvs) the cost of public transport can also be reduced thereby encouraging people to use public transport.

Hope the govt is listening and does take the decision to stop the production of diesel based cars. Atleast levy huge duties so it acts as a deterrent. 

 

http://clean-and-green.bl...

Photoyogi's picture

What about Ethanol blending?

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"We were left with no option," Petroleum Minister Murli Deora told a packed news conference after a meeting of the Cabinet Committee on Political Affairs that arrived at the decision. "

OK... how bout blending more ethanol in the petrol would that not reduce the cost a bit? Of course you will see the ailing sugar industry making some money and the related stocks which are in the lows suddenly rising. We could do with a little chini kum. rather than get all the products pricing up.

So how much Ethanol can you actually mix into petrol here is a white paper i found online
Setting the Ethanol Limit in Petrol (PDF - 148 KB)  doc dated 2002 but  chemistry does not change much.
Some years ago i had read in the news that there was some thing like a mandatory blending of 10% ethanol into gasoline. Is that already in place?
If so oops sorry!
If not why not?

-- Praveen Sundaram AkA PhotoYogi

-- PhotoYogi

narayan82's picture

Re:why is diesel subsidised.

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I did read the increase in deisel price will affect the inflation. This is becasue a lot of Essential commodities such as Milk, Veggies...etc are transported by trucks. Diesel also is used largely by Public Busses and Railways. So this again will affect people more. Diesel Cars MUST be taxed heavily. Diesel should be more a "public" fuel and not a alternative to a cheaper running car.
Narayan Gopalan
User Interaction Designer
Bangalore
bangalore-guy's picture

Exactly..

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Diesel should not be allowed to be used for private passenger vehicles. And certainly not for SUVs and Super luxury vehicles..

What the heck. People who can buy a Merc/Audi cant buy petrol to satiate the thirst of their cars ??  

http://clean-and-green.bl...

karihaida's picture

Diesel is more efficient

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Actually diesel is more efficient than petrol and has lower emissions than petrol, can be easily blended with plant oils.. so there is a case for more diesel usage.

http://en.wikipedia.org/w...

But diesel subsidy is a different issue altogether. I'm all for removing subsidy and reduce tax on all fuels and investing more into rail, roads and public transport. The very simple way of getting people out of their cars is to make it very expensive to drive :) I know all this is impractical drivel given the way our gov'ts work, but just my 2 cents..

 

 

karihaida's picture

Fuel adulteration..

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Also kerosene has been left untouched at Rs 9 /lt .. so get ready for increased fuel adulteration
karihaida's picture

Slightly off topic

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Slightly off topic but very relevent to our subisdy crazed gov'ts..

http://money.cnn.com/2008...

navshot's picture

E10

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Photoyogi,

E5 (5% ethanol) blending is in force now. What you fill at pumps in bengaluru are all E5. E10 (10%) is proposed some time later this year, but many car companies are against it, as most of the existing cars would need modifications. I think same holds good for 2-wheelers too. Also, as the ethanol content increases, the chances of it absorbing water content is higher, so the petrol pump storage would have to be kept more air-tight or worse, have to be redone with better lids/refill mechanisms, etc. This would increasingly be a problem as the ethanol content increases.

Not that these are not possible, its just that it can't be done overnight.

-- navshot
s_yajaman's picture

Energy content of ethanol - 2/3 of petrol + EROEI

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1 litre of ethanol has only 2/3 the energy content of petrol.  Hence as the ethanol content increases you can expect lower fuel efficiency in your car.

The other point is for any fuel to be viable it has to have an Energy Returned on Energy Invested (EROEI) ratio > 1.  Else we will be pumping in more energy to make the fuel than we get out of it - which is why hydrogen as an alternative fuel has a bleak future.  Liquid Hydrogen also is possible with very high compression (uses energy again) and at just above absolute zero (-273C).  Your car's petrol tank would need to be super insulated and the valves, etc. would need to be space age material

Corn ethanol has an EROEI of between 1 and 1.5 (close to energy neutral).  Sugarcane ethanol is about 2.  Crude oil has an EROEI of between 17 and 30 (depending on whether it is Heavy Sour or Light Sweet).  Canadian Tar sands have an EROEI of about 4. 

Many of these alternative fuels are viable today only because they get "subsidised" by the super high EROEI of crude oil.  Once crude oil becomes more expensive and hence more valuable, you can expect that ethanol will also become more expensive (you need fertilizer to grow it and you need diesel/petrol to transport it around).

Ethanol on a large scale is probably a pipe dream. 

Srivathsa

 

Drive safe.  It is not just the car maker which can recall its product.

blrsri's picture

ethanol in bmtc busses

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http://timesofindia.indiatimes.com/Cities/Bangalore/KSRTC_may_bail_out_MySugar/articleshow/2129816.cms

Mysugar proposal was on the cards..for running bmtc busses on ethanol..wonder what happened to this..

Btw mix of fuels probably would bring down efficiency of engines and more maintenance! Was reading that Honda CIvic was E10 ready..mockery types..why would a guy drving a civic would be consious of petrol prices..btw m800 comes in facoty fitted gas option now!

karihaida's picture

Praj industries - bio fuel

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Se this Biz standard story

Praj industries has claimed that it can produce bio-fuels from sources such as straw grass, wood chips etc. Looks promising, have to wait and see.

sanchitnis's picture

Go Green -- Buy a Used Car. It's Better Than a Hybrid

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Here is an interesting analysis: http://blog.wired.com/cars/2008/05/the-ultimate-pr.html

You will be putting in lot less CO2 into environmetn if you use a second hand fuel efficient car rather than buying a hybrid. The reason is Hybrid takes lot of energy to produce and to get return on this investment will take a long drive!

 
s_yajaman's picture

Crude oil back to $128

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Crude oil prices have jumped to $128 or almost $6 from the time the price hikes were announced. 

The OMCs got a relief of Rs.21000 crores annualy due to the price hike.  In just one trading session this has been negated.  India imports about 2 mbpd a day.  Our import bill went up by USD12 million/day or about $4.5billion a year or Rs.20000 crores. 

Just goes to show how fragile a situation we're in and the govt is still sounding apologetic about this price hike.  If they did not do it, we would have experienced forced rationing via spot shortages and long queues.  I don't think that prospect is far away.

The Left front lives on a planet of its own- where subsidies can go on forever and the govt just prints notes to pay the oil companies. 

 

Drive safe.  It is not just the car maker which can recall its product.

narayan82's picture

any govt would do the price hike!

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Why cant we make a law that stops political parties from using Price Hike as a stick to beat down the oppisition. Why can't petrol prices be goverened by a seperate tribunal or committee like a Election Commision (Maybe a Indian Fuel Commission) whos decisions are less political? BJP termed the decision as a Death Warrant! - Please sirs, do tell me what you would have done if the price went up by USD 6? And in return Cong. would have called it BJP's Death warrant! Our political fight for the aam admi is driving us into a irreversible downfall!
Narayan Gopalan
User Interaction Designer
Bangalore
s_yajaman's picture

Regular petrol in (deliberate) short supply?

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I saw this article in the ET.  Apparently some bunks claim to have no stock of regular petrol and customers are thus forced to buy branded petrol.  Anyone experienced this?

See link here 

It happened to me at my neighbourhood pump where he had stock only of the Rs.62 petrol.  I went to another one near Kuchalamba and got the Rs58 petrol. (I remember the OMCs were planning to sell only branded petrol in the metros and top 17 cities before the fuel hike was announced).

My bigger problem is this.  How do I know which petrol is actually being put into the tank?  Is there a visible difference?  For all I know they might be selling the Rs.58 petrol as Super Premium or whatever?  Anyone with better knowledge than mine?

Srivathsa

Drive safe.  It is not just the car maker which can recall its product.

blrsri's picture

70$ only

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I was told that the current price hike of fuel manages to cover 70$ cost per barrel only. The current prices are double that at 140$

Does that mean we are eventually seeing 120Rs per lt petrol?

s_yajaman's picture

Government is stuck between a rock and a hard place - petrol

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BlrSri,

It would probably be closer to Rs. 75  Taxes form a significant part of petrol and I believe some of them are specific  vs. ad valorem i.e. a fixed rupee/litre vs. percentage.  And so it would not automatically double.  The US would be a good benchmark of what petrol rates would be if there were no taxes - $4/gallon or about Rs.50/litre.  In the UK it is closer to Rs.100/litre - Shastri will know better.  Singapore - it is about Rs.65/litre.

The government is stuck really badly.  Raise fuel prices and incur the  wrath of the population.  Don't do it and risk horrible levels of inflation due to fiscal deficits.  And if government revenues go to cover the subsidies, then there will not be money for social programs. 

But (IMHO) Rs.100 petrol is not very far off - 2010-2011 at most.  Keep my prediction as a record and lets see how well I did :)

Srivathsa

P.S. I will post an Oil Primer over the weekend.

Drive safe.  It is not just the car maker which can recall its product.

bangalore-guy's picture

Excise duty on cars hiked !!

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Saw a news scroll just now :

Cars above 1500 cc, excise duty hiked by 15,000 rupees.

Cars above 2000 cc, excise duty hiked by 20,000 rupees.

This will be an added expenditure and will slow down the sale of bigger cars. Good for other road users.

 

http://clean-and-green.bl...

narayan82's picture

what use is the Tax?

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Any have any statistics for the below question? If the Oil PSU's are going at 22,000 Crore Loss per annum, would'nt the govt be making up for this by dontaing the amount to the PSU to keep it running? So if the govt did increase the price so the PSU does not have to subisidies it, and then roll tax practically to "0.00 Rs" wouldn't the equation remain the same? TO summazrise isnt the tax we are paying on Petrol/Diesel actually going back to the PSU in form of compensation for thier losses?
Narayan Gopalan
User Interaction Designer
Bangalore

Dearness Allowance will suck up all additional taxes

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All good for nothing government employees will such up the additional revenue generated through windfall taxes because of high oil prices. And this will only go to the Dearness Allowance of government employee.

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