Even before the start of the new financial year, the spectre of rising losses during 2010-11 has begun to haunt the three state-controlled oil marketing companies that account for over 90 per cent of the country’s retail petroleum products market.
“We expect under-recoveries to increase in the next year if prices are not increased since the average crude oil price next year is likely to remain higher from this year’s level of $70 a barrel,” said S V Narasimhan, director (Finance), IOC, the biggest of the oil marketing companies.
The Indian basket of crude oil, which tracks benchmark Brent crude, has averaged $69.17 a barrel in the current financial year. However, the global economic recovery, crude oil prices have been rising in the past few months. The average in February 2010 was $73.65 and, by the end of the first week of March, the average price of the Indian crude oil basket had already crossed $77 a barrel.
The oil marketing companies (OMC), however, are not hopeful of an early decision by the government to raise auto and cooking fuel prices. Confirming such fears, a government official said that the petroleum and natural gas ministry was yet to move on the recommendations of the Kirit Parikh committee on petroleum products.
The Kirit Parikh committee report, which was submitted over a month ago, had suggested market-linked prices for petrol and diesel. However, only a partial increase of Rs 6 a litre for kerosene and Rs 100 per LPG cylinder were proposed. It also proposed a reduction in kerosene sold through ration cards by 20 per cent.
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An OMC official, who declined to be identified, also said the opposition outcry over the last increase in the prices of diesel and petrol (by Rs 2.55 and Rs 2.71 a litre, respectively) in last month’s Budget had put an end to their hopes of a further price rise in the next few months.
The OMCs are already sitting on an unmet under-recovery of about Rs 19,000 crore in the current fiscal as the finance ministry struggles to meet its fiscal deficit target for 2009-10. The Budget for 2010-11 proposes to bring down the fiscal deficit to 5.5 per cent of gross domestic product (GDP) from 6.7 in the current year. With no adequate financial provision in the Budget for the next year to compensate the OMCs for their under-recoveries and the government’s political inability to raise prices in the next few months at least, the prospects of rising under-recoveries appear more than real.
The three marketing companies are estimated to be together losing Rs 196 crore a day on the sale of petrol, diesel, kerosene and LPG, with IOC alone losing Rs 107 crore. For the full year, they are estimated to have under-recoveries of Rs 46,600 crore.
A senior finance ministry official, however, pointed out that the government had provided Rs 3,108 crore for oil subsidies for the next year, pending a decision on petroleum prices. "There was no basis of providing a subsidy for the next year. Necessary provision can be made later in the supplementary to the Budget," he added.
He further said there would be no impact on the fiscal deficit since by October-November, the trend in savings of other ministries would be known and the government would be able to effect savings in expenditure under other heads.
A similar trend was seen this year when the amount provided was Rs 2,954 crore at the start of the year, rising to Rs 14,954 crore in the revised estimates.
For the current year, the underrecovery on petrol and diesel is being compensated by upstream companies but the underrecovery on kerosene and LPG is supposed to be compensated by the government. After the discounts provided by upstream companies — Oil and Natural Gas Corporation, Oil India Ltd and Gas Authority of India Ltd — the OMCs are still left with losses of over Rs 31,000 crore. However, the Budget made a provision of Rs 12,000 crore for under recoveries in the current financial year.
The OMCs incur an under-recovery of Rs 4.97 a litre on petrol, Rs 3.27 a litre on diesel, Rs 16.91 a litre on kerosene and Rs 267.39 on a domestic LPG cylinder.
The recent increase of Rs 2.71 and Rs 2.55 a litre in prices of petrol and diesel, respectively, has impaired the ability of the government to act on the committee’s recommendations. This increase was taken following the restoration of the five per cent customs duty on crude and Rs 1 a litre increase in excise duty announced in the recent Budget.