New Delhi: Profitability at two of India’s top state-run oil firms is being hurt at a time of high global crude costs, as the government delays increasing state-set fuel prices due to political pressure from high inflation.
On Thursday, S.V. Narasimhan, head of finance at top oil retailer Indian Oil Corp. , said his firm’s daily revenue loss on the sale of diesel, kerosene and cooking gas was Rs150 crore ($33.18 million).
Revenue loss is the gap between fixed retail prices and what state-run oil retailers pay when they buy petrol and diesel from refineries.
The head of state-run explorer ONGC said his firms December quarter profitability may be hit.
Congress party has dithered over raising retail prices of diesel and cooking gas, primarily because of high food inflation that has angered most of its core voters as it prepares for elections in three key states this year.
“Higher crude oil prices are disadvantageous for us. Crude oil prices above $70 per barrel reduce our retention price,” ONGC chairman R. S. Sharma said.
Benchmark US crude oil futures have been above $90 a barrel for most of the past three-week, returning to levels last seen at the end of 2008.
State-run retailers IOC, Hindustan Petroleum and Bharat Petroleum can set petrol prices but prices of diesel and cooking fuels are fixed by the government, in an attempt to check inflation and cushion the poor.
Upstream firms ONGC, Oil India and GAIL (India) sell crude oil and products at cheaper rates to retailers to partly compensate them for losses on fuel sales.
India’s food inflation accelerated for the fifth straight week to the highest in more than a year on Thursday, reinforcing fears it has spilt over to broader prices.
Raising diesel prices could give the opposition another weapon to attack Prime Minister Manmohan Singh’s coalition government, which has been weakened by corruption scandals that stalled parliament’s December session and put reform proposals in Asia’s third-largest economy on hold.
Indian oil firms last month raised petrol prices by 5.6%, but oil minister Murli Deora on Wednesday hinted that the government would not raise diesel prices for now.
Diesel accounts for one-third of fuel use and is crucial for transportation and the agriculture sector. On the sale of a litre of diesel IOC’s revenue loss was about Rs6.21 a litre.