Oil marketing firms can change prices if crude crosses $70 per barrel.

Oil prices will be revised every month by public sector oil marketing companies from now on, but only with the approval of the petroleum ministry.

Also, the revision can be done only if prices of the Indian basket of crude cross $70 per barrel (currently around $68 per barrel). The Union Cabinet will not have to be consulted every time a change in prices is effected.

This was one of the proposals the Union Cabinet okayed earlier this week when it endorsed the rise in petrol and diesel prices. Before June 2005, oil prices were revised — upwards or downwards — on a fortnightly basis.

In effect, the oil PSUs will not get the flexibility to change prices on their own, with the ministry exerting control over what is a politically sensitive issue. This also means that oil companies will have only 12 chances a year to change prices, as opposed to the 24 they got before June 2005.

The second coming of flexi-pricing, albeit with changes, grants much less autonomy to the oil PSUs than before.

Under the National Democratic Alliance regime, public sector oil marketing companies like IndianOil, Bharat Petroleum and Hindustan Petroleum were given the freedom to revise prices on their own when the change was within a specific price band. Beyond that, they had to approach the petroleum ministry.

“There will be flexibility for changing the petroleum product prices, but any hike will have to be in consultation with the ministry,” a petroleum ministry official added.

With this approach, the oil marketing companies will be able to avoid a situation of unmanageable under-recoveries. Under-recoveries are suffered by companies when they sell products below cost prices.

While the under-recoveries were as high as Rs 35,000 crore last year, they were threatening to double as the prices touched $70 per barrel.

However, the government intervened and hiked petrol and diesel prices amid protests. The flexi-pricing system is not likely to affect consumers for now as the prices of crude stand at $68 per barrel on higher stocks in the international markets.

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