Regulate petrol prices again: OMCs2 min read . Updated: 22 Mar 2012, 12:32 AM IST
Regulate petrol prices again: OMCs
New Delhi: India’s oil marketing companies (OMCs), weighed down by losses because they can’t sell petrol at market price despite the commodity being “deregulated", have written to the government asking that the fuel be included in the so-called administered pricing mechanism.
OMCs Indian Oil Corp. Ltd, Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd are compensated by the government for selling diesel, kerosene and liquefied petroleum gas at government-fixed prices. They aren’t for petrol since June 2010, when the government allowed oil marketers to fix petrol prices. However, they still have to get the government’s approval to raise prices.
The rapid increase in the price of Brent crude, by 11.06% since 1 January, has only exacerbated the situation for OMCs. Mint reported on 14 March that these companies may witness a significant jump in losses, to ₹ 2 trillion in the next fiscal year, on account of selling fuel below cost at state-mandated prices. Such an increase will impact the financials of the companies, which currently register losses of ₹ 439.50, ₹ 13.10 and ₹ 28.67 on a cooking gas cylinder, one litre of diesel and the same volume of kerosene, respectively. The government subsidizes these losses.
A senior executive at another OMC confirmed the development. He, too, did not want to be named.
The government wants to move away from administered prices and its intention was articulated in 2010 when, apart from deregulating petrol prices, it also increased the price of subsidized natural gas sold by state-owned firms to the same level as that of gas from Reliance Industries Ltd’s field in the Krishna-Godavari basin.
An oil ministry spokesperson declined to comment.
Despite the increase in the price of crude oil, petrol prices have stayed at the same level, largely because the government didn’t want them raised in the run-up to assembly elections in Uttar Pradesh, Uttarakhand, Punjab, Manipur and Goa. The prices were last raised on 1 December. The results of the polls were announced on 6 March.
According to the oil ministry, OMCs lose around ₹ 486 crore a day on account of selling petroleum products at government-mandated prices. The total losses on this account to be borne by refiners this fiscal are expected at ₹ 1.32 trillion compared with ₹ 78,190 crore last year, according to the ministry. In the nine months ended December, they stood at ₹ 97,313 crore. The average price of crude oil in the Indian energy basket on 21 March was $123.62 ( ₹ 6,255) per barrel.
The government plans to cut its subsidy bill to under 2% of the gross domestic product in 2012-13, as announced by finance minister Pranab Mukherjee on 16 March.
Angel Broking Ltd said in a 16 March report that this subsidy “would be insufficient if crude oil stays at current levels (above $115 per barrel) or retail prices are not revised upwards". Another brokerage, Nirmal Bang Institutional Equities Pvt. Ltd, said in a 17 March report: “Even though no reforms were announced in the budget, the low subsidies forecast for FY13, which the market has discounted as unrealistic, could be an indicator that the government may announce market-determined pricing of subsidized products after Parliament’s budget session."
Subsidy on petroleum products has made the biggest dent in the government’s balance sheet. The oil subsidy shot up 78% to an estimated ₹ 68,481 crore in the current fiscal year from ₹ 38,371 last year. The government has substantially reduced the budgeted amount for the oil subsidy to ₹ 43,580 crore in FY13.