Oil firms' under-recoveries pegged at Rs 13 a litre

The focus has once again shifted to oil marketing companies, with oil prices today hitting a seven-week high on international exchanges.

Once again, oil marketing companies (OMCs) will have to deal with rising under-recoveries for auto fuels and kerosene. However, in the case of LPG, these companies would receive a small cushion, as global prices are understood to have eased over the last few weeks.

OMCs' blended under-recoveries for auto fuels are currently estimated at Rs 3.5-4 a litre (prior to subsidy-sharing by upstream players such as ONGC), compared with 80-90 paise a litre levels in the December 2005 quarter, analysts said. Again, their blended under-recoveries for auto fuels were pegged at Rs 1.5-1.8 in mid-February 2006.

Meanwhile, international prices of kerosene have reached $75 a barrel levels from $71-72 levels at the end of the third quarter of FY06. As a result, OMCs' under-recoveries are estimated to have reached Rs 13 a litre (prior to subsidy-sharing by upstream players) over Rs 12 a litre levels in the December 2005 quarter, analysts said.

However, in the case of LPG, under-recoveries are estimated to have dropped to Rs 160-165 a cylinder (prior to subsidy-sharing by upstream players) compared with Rs 175 a cylinder levels in the December 2005 quarter.

This fall is being attributed to a decline in global LPG prices, which are currently hovering around $530-540 a tonne levels against $600 a tonne levels at the end of the third quarter of FY06, analysts said.

LPG prices have declined largely owing to a gradual fall in heating oil requirements from consumers in the western countries.

Nevertheless, according to analysts, the total subsidy burden of the domestic oil industry for FY06 is pegged at Rs 38,000-39,000 crore. In the previous financial year, the burden of under-recoveries was estimated at Rs 20,100 crore.

The government will be meeting its share of the oil subsidy burden by issuing bonds worth Rs 11,500 crore.