Oil deal to cover 92% under-recoveries

The government's bail-out package will help public sector oil marketing companies cover around 92 per cent of the under-recovery of Rs 73,500-crore.

Oil marketing companies like Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum will also have lower tariff protection as the government has reduced the Customs duty on crude by 2.5 per cent from 10 per cent.

At the same time, for these companies, the movement to trade-parity pricing would reduce refining margins. This is because they will now have to sell at a lower price than the import-parity price, which took into account the sea freight and insurance charges for domestic production also.

Director (Finance) S Narsimhan of IndianOil, the largest oil marketing company with a 50 per cent market share, said this would reduce the under-recovery burden of oil marketing companies. This year, the under-recovery will go down by Rs 2,200 crore to Rs 71,300 crore.

Even with today's measures, there will be a gap of Rs 5,900 crore as oil marketing companies will continue to bear an under-recovery of Rs 114 per cylinder of cooking gas and Rs 17 per litre on kerosene. The government has not raised the the prices of these fuels.

Of this, Petroleum Secretary MS Srinivasan said the petroleum ministry expected Rs 2,300 to Rs 2,500 crore as discounts on petroleum products sold by stand-alone refineries during the year.

"This means that public sector oil marketing companies will bear a burden of not more than Rs 3,000 crore," Srinivasan added.

On oil marketing companies facing more competition after the reduction of Customs duty, Narsimhan said, "We are hoping that the impact of reduction in Customs duty will be compensated by discounts by the stand-alone refineries."

Last year, Reliance Industries had given IndianOil discounts amounting to Rs 700 crore. The oil marketing companies are negotiating with stand-alone refineries for discounts for this year also.