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Govt defers decision on fuel price hike

Govt defers decision on fuel price hike
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First Published: Fri, May 30 2008. 12 33 AM IST
Updated: Fri, May 30 2008. 12 33 AM IST
New Delhi: Even as the Union government postponed its decision on an increase in fuel prices to Friday, Hindustan Petroleum Corp. Ltd (HPCL), taking its cue from the two other state-owned oil marketing companies, said it would resort to “fuel rationing” by next week if the bailout package was not announced soon.
In a separate development, the Reserve Bank of India (RBI) on Thursday eased lending norms for public sector oil marketing firms to enable them to buy expensive crude in the international markets. The central bank raised banks’ exposure limit to oil firms from 15% of their capital and reserves to 25% “on a review of the current situation in the oil sector”. The banking regulator has also allowed banks to increase the exposure further to 30% of their capital in “exceptional circumstances”.
The ceiling has been eased only for those oil companies that have been issued oil bonds to compensate for their losses. RBI, in July 2007, had capped banks’ exposure at 15% of capital funds in case of a single borrower and 40% in the case of a borrower group.
This means State Bank of India, which had capital and reserves of Rs31,298.56 crore last year and could lend up to Rs4,694.79 crore to one oil firm under the old norms, can now lend up to Rs7,824.64 crore or even Rs9,389.57 crore. The actual number will be even higher because State Bank’s net worth has since increased following its rights issue and the addition of a substantial portion of its net profit for fiscal year 2008 to its reserves.
Crude prices have more than doubled from a year ago and hit a record $135.09 (Rs5,782 today) a barrel on 21 May. Total losses at government-owned oil marketing firms on account of their inability to sell fuel at market prices are expected to be around Rs2 trillion in 2008-09.
Companies such as Indian Oil Corp. Ltd and Bharat Petroleum Corp. Ltd have already said they will restrict the sale of petrol, diesel and liquefied petroleum gas (LPG) cylinders.
“We will decide on the rationing next week. If the current situation persists, we will run out of cash within the next two-and-a-half months,” said Arun Balakrishnan, chairman and managing director of HPCL.
Meanwhile, petroleum and natural gas minister Murli Deora said there would be no fuel rationing in the country.
“A meeting of the cabinet, which was to take up the matter today (on Thursday), has been postponed. Hopefully, by Saturday, we will have a solution,” Deora added.
A series of meetings were held on Thursday between Prime Minister Manmohan Singh, external affairs minister Pranab Mukherjee, finance minister P. Chidambaram, Planning Commission deputy chairman Montek Singh Ahluwalia and Deora to discuss the problem. The Prime Minister was expected to meet the chairperson of the ruling United Progressive Alliance and Congress chief Sonia Gandhi late on Thursday evening to find a solution.
The petroleum ministry has proposed a Rs2-4 increase in fuel prices, and a reduction in customs and excise duties on crude and crude products.
HPCL’s decision will severely disrupt supplies in the northern, western and southern regions, where it has a significant presence. The company has 8,000 outlets in the country and a 17.3% share in the Indian petroleum products market.
The company recorded a net profit of Rs384.51 crore in the fourth quarter of 2007-08 against a net profit of Rs549.54 crore in the corresponding period of the previous year. This has been largely attributed to what oil firms call “under-recoveries”—the difference between the retail price of fuel and the production cost for the company—in its retail sales of petroleum products. However, the company still made profits because of the reversal of a tax provision of Rs409 crore.
HPCL is currently selling petrol, diesel, kerosene and LPG at a loss of Rs16.33 per litre, Rs23.49 per litre, Rs28.72 per litre and Rs305.90 per cylinder, respectively.
The company recorded a net profit of Rs1,135 crore in 2007-08, a fall of 38.41% from a year ago. Net sales for the year were Rs1.04 trillion, higher by 13.54%.
HPCL’s borrowings reached Rs18,000 crore on account of the under-recoveries.
(Anup Roy in Mumbai contributed to this story.)
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First Published: Fri, May 30 2008. 12 33 AM IST
More Topics: Oil | Fuel price hike | Crude | UPA | Oil companies |