New Delhi: Diesel and petrol may soon be costlier as the government takes steps to narrow the nation’s fiscal deficit.
“There is flexibility to increase diesel prices by a small margin. We can increase diesel prices by 45-50 paise per litre on a monthly basis,” said R.S. Butola, chairman and managing director at Indian Oil Corp. Ltd, India’s largest fuel retailer.
While the government allowed refiners to fix petrol prices since June 2010, it removed pricing of diesel from the purview of the administered price mechanism in January. Currently, fuel prices are reviewed once a fortnight.
Diesel prices were last increased on 16 January. The last price revision for petrol took place on 18 January.
“We will review petrol prices,” Butola said. “I am not ruling out an increase.” Diesel in Delhi costs Rs.47.65 a litre and petrol, Rs.67.6 per litre. Although Butola asserted that Indian Oil can increase prices on a weekly basis, he referred to the fortnightly cycle as the “right time frame”.
The rationale is to continue with a gradual increase in diesel prices till the losses borne by government-controlled retailers such as Indian Oil, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd are wiped out. These state-run firms currently lose Rs.9.22 per litre because of selling diesel below the cost of production and Rs.1.32 per litre on petrol.
However, the difference between the retail and bulk prices of diesel has resulted in a decline in bulk sales to consumers such as state transport corporations, with the demand shifting to retail outlets.
The government-controlled fuel retailers posted a decline of 38.6% in cumulative net profit to Rs.5,126.68 crore in the three months ended 31 December. These companies had posted a profit of Rs.8,352.78 crore in the third quarter of last fiscal. Cumulative revenue rose 7.91% to Rs.2.31 trillion in the third quarter.
Indian Oil was the only firm that reported an increase in net profit, while the other two saw a dip.
The oil marketers posted these numbers even as the government compensated the state-controlled refiners for selling diesel, kerosene and cooking gas at below market price.
Indian Oil on Wednesday announced a 33.9% increase in net profit to Rs.3,332 crore for the third quarter, compared with a profit of Rs.2,488 crore in the same period last fiscal year. Revenue for the country’s biggest refiner increased 7.44% to Rs.1,15,517.51 crore. However, for the April-December period, Indian Oil has reported a loss of Rs.9,507.64 crore.
Bharat Petroleum, in a separate announcement on Wednesday, said its net profit declined 47.5% to Rs.1,647.57 crore. Revenue increased 5.97% to Rs.62,368.74 crore.
Hindustan Petroleum’s net profit in the third quarter was Rs.147.11 crore, compared with a profit of Rs.2,725.18 crore in the same period last year. Revenue from operations rose 11.33% to Rs.53,414 crore.
The government will pay Rs.25,000 crore additional cash subsidy to state-owned fuel retailers to make up for a part of the Rs.1,24,854 crore revenue the three marketers together lost in the April-December period. This has been accounted for by the firms.
The payout is in addition to the Rs.30,000 crore subsidy released earlier. Of the fresh dispensation, Indian Oil got Rs.13,474.56 crore, Bharat Petroleum Rs.5,987.25 crore and Hindustan Petroleum Rs.5,538.19 crore.
The total under-recoveries—the difference between market price and fuel retail rates—to be borne by the oil marketing firms this fiscal year is expected at Rs.1.67 trillion, according to the petroleum ministry. The retailers lost Rs.1.24 trillion until December on account of selling diesel, kerosene and cooking gas at government-fixed prices. The total loss from selling fuel below cost in the fiscal year ended March was Rs.1.44 trillion.
The operating environment for the firms is marked by uncertainty as they continue to sell fuel below cost and are not sure about the extent to which they will be reimbursed by the government or when.
Indian Oil is a case in point. Its borrowing has gone up to Rs.94,908 crore on 31 December from Rs.75,447 crore on 31 March, due to the delayed compensation payment by the government. Due to these delays, the firm has incurred an interest cost of Rs.5,005 crore in the nine months from April compared with the Rs.5,600 crore in the same period in the preceding financial year.
Butola hoped that the national budget to be announced on 28 February will settle the uncertainty about the subsidy-sharing mechanism.
“It will provide a big relief,” he said. “Huge interest costs are killing our profitability.”
In another development, Indian Oil said it was trying to secure insurance for Chennai Petroleum Corp. Ltd’s refinery.
With National Iranian Oil Co. having a stake in the Chennai refinery, Indian Oil is finding it difficult to do so due to the curbs imposed by the West on Iran for its suspected nuclear weapons programme.