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Business News/ Politics / Policy/  Prices of diesel may rise by `3-5 a litre, LPG by `50
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Prices of diesel may rise by `3-5 a litre, LPG by `50

Oil minister urges PM to take steps to tackle a record `1.80 trillion of losses arising from a falling rupee and surging oil prices

Photo: BloombergPremium
Photo: Bloomberg

New Delhi: Prices of diesel may be increased by 3-5 per litre, kerosene by 2 and LPG by 50 per cylinder as oil minister M. Veerappa Moily urged Prime Minister Manmohan Singh to take steps to tackle a record 1.80 trillion of losses arising from dipping rupee and surging oil rates.

Moily, who had on Thursday met finance minister P. Chidambaram on the issue, on 30 August wrote to Singh saying without a price increase the government will have to shell out a record 97,500 crore to subsidize diesel and cooking fuel.

“If the present position persists, the total under-recovery (revenue loss) would reach to a level of 180,000 crore in the current financial year compared with 161,000 crore during 2012-13," Moily wrote to the Prime Minister.

A 25% drop in rupee value has resulted in losses on diesel sales widening to 10.22 per litre despite prices being raised by 50 paise a litre every month since January. This coupled with a loss of 33.54 a litre on kerosene and 412 on the sale of every 14.2-kg LPG cylinder. This translated into a total revenue loss of 180,000 crore in the current fiscal year, he said.

An increase in rates is possible after the monsoon session of Parliament ends on 6 September.

Moily, who sent an almost identical note to Chidambaram, said a 1 increase in diesel price will cut the losses by 4,522 crore in rest of the current fiscal year ending March 2014. The proposed hike is a one-time measure and is outside the monthly revision in rates of 50 paise that has been happening since January.

Similarly, an increase of 50 per LPG cylinder will cut the losses by 2,604 crore. Besides, a 2 per litre hike in kerosene prices would cut losses by 1,014 crore.

“I would like to bring to your kind notice that the consistent rupee depreciation has a severe impact on the under-recovery of the oil marketing companies (OMCs) and consequently on their financial health,“ Moily wrote in the note to the Prime Minister and Chidambaram.

A 1 decline in the Indian rupee against the US dollar increases the under-recovery (loss) of the public sector OMCs on sale of diesel, kerosene and domestic LPG by about 7,900 crore per annum, he said.

During 2012-13, oil firms lost 161,029 crore on selling diesel and cooking fuel at government controlled rates. To make up for this, the government gave 85,000 crore cash subsidy while upstream firms such as ONGC gave 60,000 crore. The rest of the losses were absorbed by the fuel retailers.

“The financial health of OMCs has been deteriorating over the years. During the year 2012-13, even after getting almost 100% compensation, the OMCs could report a combined profit after tax (PAT) of mere 8,552 crore, which was only 0.95% of their combined turnover of 892,653 crore," he said.

The combined borrowing of the three retailers at the end of March 2013 was 138,522 crore and their interest burden rose to 10,254 crore. “The continuous increase in the borrowings have resulted in deterioration of the debt-equity ratio of OMCs over the years. Indian Oil Corp’s (IOC) debt-equity ratio has risen from 0.88 in March 2010 to 1.32 in March 2013 while for Hindustan Petroleum Corp (HPCL), the figure soared from 1.84 to 2.46."

Moily said that despite of the decision to authorize retailers to increase the price of diesel in the range of 40-50 paise per litre per month and after seven price hikes since 18 January, totalling 4.25 per litre, the current under-recovery of 10.22 per litre is higher than the level of prevailing loss of 9.03 a litre in January. PTI

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Published: 31 Aug 2013, 07:17 PM IST
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