Monday, 14 May 2012

State oil companies like IOC, HPCL, BPCL may hike petrol prices by Rs 8 this month to recover past losses

State oil firms plan to raise petrol prices after the end of the budget session of Parliament this month and revise them every fortnight to recover 5,000 crore past revenue losses as they haven't increased rates since December due to political pressure.

 So far, the oil ministry has not allowed oil firms to exercise their freedom to raise petrol prices as per a Cabinet decision. The ministry informally advises companies to postpone the decision because of political considerations. Senior executives at Indian Oil, Hindustan Petroleum and Bharat Petroleum say the companies want to align pump prices of petrol with market rates by an immediate hike of 7 per litre and also recover part of five-month old dues by an additional hike of at least 1 a litre.

 If petrol prices are raised by 8 a litre, the net impact after taxes would raise the price in Delhi by about 9.6 per litre. The fuel is currently sold at 65.64 per litre in New Delhi. "The government is not willing to compensate us for our losses on petrol as it is a deregulated fuel. We can't absorb the losses in our accounts. We have to pass it to consumers in small installments," chairman of an oil company said, requesting anonymity. But oil ministry officials do not rule out political interference again this time to stop a steep price hike, especially in the light of forthcoming presidential elections.

"Oil PSUs' demand is legitimate. Either the government compensates them for their losses on petrol or allows them to recover their losses, retrospectively. But everything will depend on political will," said an oil ministry official who did not wish to be named. Incumbent President Pratibha Patil's term will end in July. Minister of state for petroleum RPN Singh told the Rajya Sabha last week that oil companies have suggested either declaring petrol as a regulated product "temporarily" or reducing excise duty on petrol from 14.78 per litre by an amount equivalent to their revenue losses .

"Ministry of petroleum has taken up the matter with the ministry of finance," Singh said. Singh told Parliament that "even after implementation of the market-determined pricing, the oil marketing companies have been making price revisions of petrol in a guarded manner, at times, absorbing a part of under-recovery themselves." He said last week that IOC was incurring a revenue loss of 7.17 per litre on sale of petrol. State oil firms could not raise petrol rates under tacit directive from the UPA government initially to brighten its prospects in assembly elections in Punjab, Uttar Pradesh, Uttarakhand and Goa. But they were not allowed to raise petrol prices even after assembly elections as the government did not want to risk passage of crucial Union budget in Parliament fearing stiff opposition by its allies such as Trinamool Congress and DMK. State fuel retailers are also losing 13.91 per litre on diesel, 31.49 per litre on kerosene and 480.50 per cylinder on cooking gas.

 The oil ministry is planning to convene a meeting of the empowered group of ministers soon after the Parliament session to raise prices of regulated fuels, such as diesel and cooking gas. It is also persuading the finance ministry to exempt oil marketing companies from sharing oil subsidy burden for the last quarter of 2011-12 so that they can make reasonable profits, ministry officials said. State oil marketing companies have incurred a revenue loss of 1,38,541 crore in 2011-12.

The government has already paid cash compensation of 45,000 crore to partially meet their revenue losses for first three quarters. State-run ONGC, Gail and Oil India have shared subsidy burden of 36,900 crore for nine months ended December 2011. There is no clarity on subsidy sharing of 56,641 crore for the last quarter. "Unless upstream companies and the government share a large part of unmet under-recovery (revenue loss), all three firms will sink into red for the first time," a senior executive of Mumbai-based oil marketing firm said. The three firms are schedule to announce their annual financial results this month.


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