New Delhi: With crude prices expected to move from $80 to $90 a barrel, oil company losses are expected to be to the tune of Rs70,000 crore by 31 March, 2008
According to industry chamber Assocham, the time is right for the government to pass on the burden of crude prices to the common man, but in phases.
The Chamber holds that its proposal even if attracts widespread public criticism, makes economic sense as forcing oil companies to continue selling petroleum products at subsidized prices will render them sick.
* Government proposal to issue oil bonds worth Rs24,000 crore for OMCs to offset some of their losses on account of sky rocketing crude oil prices, is not a practical solution for this would put them under heavy obligation from public borrowing
* Rise in price of diesel, petrol and LPG is since over due and moderate price rise will have immediate effect on Q1 results of OMCs, eroding their profitability
* OMCs have already Rs13,000 crore including Rs7,000 crore on sale of LPG and kerosene by way of subsidizing prices in the interest of the common man
* OMCs will lose about Rs70,000 crore by end of current fiscal in case the government continues to persuade oil companies to defer POL price hike
* IOC would be worst hit since its market size is currently 50% and it has the largest supply chain for petroleum, oil and lubricants, besides diesel and LPG
* Domestic crude oil import requirements will keep going up to about 85% in next 4-5 years from current level of 70-72% even though refining capacities in India are poised to increase by 58% to touch 235 million tonnes from present level of 160 million tonnes
*Demand for petroleum products including crude oil will continue to rise with demand in energy
Recommendations to Petroleum & Natural Gas Ministry
* Minimum hike of Rs1 and 2 a litre in diesel and petrol prices, as also moderate increase in per LPG cylinder price of Rs20/- to enable OMCs to restrict their losses within present estimated amount of around Rs 55,000 crore
* Proposed hike will generate revenues for OMCs to the extent of Rs15,000 crore in remaining period of current fiscal, in the absence of which total OMCs losses would be around Rs70,000 crore
* Harness alternate energy resources to reduce dependence on crude oil imports