With international oil prices continuing to slide, the over-recovery or profit on diesel sales, which was 35 paise in the second half of September, climbed to Rs 1.90 a litre, an official statement said in Delhi.
Over-recovery or profit should have in natural course translated into a price reduction to bring retail selling price at par with cost. But the Oil Ministry decided to wait and watch last month.
Diesel prices have not been deregulated or freed yet and so rates cannot be reduced.
On the other hand, petrol was deregulated in June 2010 and rates have since then moved every fortnight in tandem with its cost. Petrol rates were on Tuesday cut by 54 paise in line with international trend.
Softening international oil rates have meant that diesel under-recovery or the difference between retail price and its imported cost was wiped out and there was an over-recovery of 35 paise a litre from September 16. This over-recovery is now Rs 1.90 a litre.
But under-recoveries continue on kerosene and LPG.
"In the case of PDS Kerosene and Domestic LPG, the under-recoveries for the 1st fortnight of October 2014 will be Rs 31.22 per litre (Rs 32.67 per litre in last fortnight) and Rs 404.64 per cylinder (Rs 427.82 per cylinder in last fortnight) respectively," the statement said.
State-owned fuel retailers - Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) - are losing about Rs 156 crore a day on sale of PDS kerosene and domestic LPG. This is lower than Rs 190 crore daily under-recoveries during previous fortnight, it said.
Sources said the Oil Ministry is of the view that while the Cabinet Committee on Political Affairs (CCPA) on January 17, 2013 allowed a monthly increase of 40-50 paise per month in the price of diesel to wipe out the under-recovery, it wasn't envisaged that there would be over-recovery.
It wants to reduce diesel price to protect state-owned oil companies' market share, which may be lost to private retailers who would be selling diesel in tandem with international prices.