By Kartik Goyal and Soraya Permatasari
June 4 (Bloomberg) -- India and Malaysia were forced to raise fuel prices after crude oil almost doubled in a year, risking fanning inflation and social unrest.
Gasoline will rise 11 percent in India's capital New Delhi to 50.6 rupees ($1.17) a liter from midnight. Pump prices in Malaysia will increase 41 percent to 2.70 ringgit (83 U.S. cents) a liter from tomorrow and will now track global market rates.
Asian nations are grappling with record crude prices that have raised the cost of subsidies and caused losses for refineries. Indonesia and Sri Lanka have passed on higher oil costs, undermining efforts to boost economic growth.
``The countries in Asia, which are dependent on imports, will have to live with the specter of accelerating inflation and slowing economic growth this year,'' said Kaushik Das, an economist with Mumbai-based Kotak Mahindra Bank Ltd. ``The situation may reverse only if there is a sharp decline in global crude oil prices.''
Malaysian Prime Minister Abdullah Ahmad Badawi and his Indian counterpart Manmohan Singh are risking a political backlash after losing ground in elections in the past year. Singh's parliamentary majority hinges on support from communist parties who pledged to rally the nation's 600 million poor in nationwide protests from tomorrow.
Higher Prices
Indian drivers will pay 9 percent more for diesel and families will be charged an additional 17 percent for a cylinder of cooking gas, Oil Minister Murli Deora told reporters in New Delhi. The measures may add between 0.5 percentage point and 0.6 percentage point to wholesale prices, already at a 3 1/2 year high, the government said.
In Malaysia, the price of 97-RON grade gasoline will now be adjusted monthly to track global prices, the prime minister said. The decision may spur inflation that quickened to a 14-month high of 3 percent in April, adding pressure on the central bank to start raising borrowing costs, Goldman Sachs Group Inc. said.
Consumer prices will rise an average 6 percent this year, from 3.2 percent estimated previously, Goldman said in a report.
Tenaga Nasional Bhd., the state-controlled power producer, will be allowed to raise electricity prices in peninsular Malaysia starting July as it will have to pay higher prices for gas, Abdullah told reporters in Putrajaya, outside Kuala Lumpur.
Oil prices reached a record $135.09 a barrel in New York on May 22, driven partly by speculation fuel subsidies in Asia will spur demand. Fuel and food account for about 75 percent of household spending for poor families in Asia, according to the Asian Development Bank.
Customs Duties
India also cut customs duties on gasoline and diesel by two thirds to 2.5 percent and scrapped a 5 percent import tax on crude oil. The measures are aimed at reducing revenue losses at state-run refiners that have reached more than $1 billion a week.
``The prices should have been raised higher for a real impact,'' said Ballabh Modani, Mumbai-based analyst with Enam Securities Pvt. who is ``underweight'' on the shares of Indian state-run refiners. ``There's no point in ad hoc increases.''
Raising fuel prices to help oil refiners reduce losses and protect government finances was ``inevitable,'' Singh said.
``There are limits to which we can keep consumer prices unaffected by rising import costs,'' India's prime minister said in a televised address to the nation. ``Our oil companies cannot go on incurring losses.''
India Panel
India formed a panel of officials to evaluate fuel prices. The group, led by B.K. Chaturvedi, a member of the Planning Commission, will also assess the impact on refiners' and oil explorers' earnings and the way they are compensated for selling fuels below cost, the prime minister's office said in an e-mail.
Today's price rises and duty cuts will pare losses for refiners led by Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. by about 420 billion rupees, Oil Secretary M.S. Srinivasan said.
Indian Oil, the nation's biggest refiner, declined 3.7 percent to 417.85 rupees in Mumbai, while second-ranked Bharat Petroleum slumped 8.4 percent to 322.3 rupees.
``The only long-term sustainable measure is raising prices,'' B. Mukherjee, director of finance, Hindustan Petroleum, said in a television interview with Bloomberg. Shares of the refiner, India's third-largest under state control, declined 2.6 percent to 241.05 rupees.
The government previously increased fuel prices in February, the first time since June 2006. Cooking gas prices had been capped since April 2005.
Imports Oil
India, Asia's third-biggest economy, imports 70 percent of its oil requirement and is seeking ways to soften the impact of the surge in prices. Singh said this week that subsidies can't be allowed to rise any further because petroleum prices don't reflect world trends.
Indonesia raised fuel prices by an average 29 percent on May 24, the first increase in three years, to cut subsidy costs.
Ceylon Petroleum Corp., Sri Lanka's state oil company, increased fuel prices for the second time this year on May 25 to trim losses. Lanka IOC Ltd., the Sri Lankan unit of Indian Oil, raised diesel prices three times and gasoline once this year.
Part of the loss incurred by Indian refiners is compensated by the government, which gives them bonds and asks Oil & Natural Gas Corp. and other state-run explorers to share the subsidy.
Oil refiners will still lose about 290 billion rupees in the fiscal year after price increases and oil bonds, Revenue Secretary P.V. Bhide said today.
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