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Low fuel prices seen snipping subsidy burden

More funds to be available for reinvestment with low fuel prices, says FM.

October 4, 2006

With the softening of international prices set to reduce the subsidy burden, more funds are expected to be available for reinvestment in public sector undertakings (PSUs). The reduced burden of subsidy would mean that funds would be available for re-investment in PSUs, observed Union Finance Minister P Chidambaram.

Crude oil dropped to the lowest in more than seven months on expectations that US fuel supplies will climb for an eighth consecutive week. With the current decline in oil prices, the oil marketing companies have managed to break even on the sale of petrol, while still incurring a loss of Rs 5 on each litre of diesel.

However, the benefit of softening international crude prices will not be passed on to the consumers now the Finance Minister said. The dropping of prices would help reduce the amount of subsidies, he added. Elaborating on what that meant, he said the government had not passed on the burden to the consumers when the international oil prices went up. The reduced international oil prices have only lessened the subsidy burden of firms like ONGC, oil marketing companies and the government, he opined.

Saying that that the government would issue bonds to public sector oil marketing firms soon, he said oil bonds would be given to these companies in a bid to compensate them for selling petrol and diesel at government prices. These prices, he said, are much lower than the prevailing international price of fuel. The government plans to issue oil bonds in two tranches of Rs 14,150 crore.

Meanwhile in the international market, crude oil price steadied around $58 per barrel on Wednesday taking losses for the week to more than 7 per cent. While Nymex crude dropped 37 cents to $58.31 in Singapore deals - the lowest since mid-February after the $2.35 fall in New York deals on Tuesday. London Brent dropped 41 cents to $58.02 after hitting $57.78. This in fact is the lowest since December 30, last year.


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