PSU oil firms may freeze prices

Cost of petroleum products may be frozen at the April level to hedge against price hikes.

Public sector oil marketing companies are considering freezing prices at which they buy petroleum products at the April level to hedge against further price hikes.

The move may put further pressure on Reliance Industries Ltd to give discount over the applicable import parity price.

Executives of Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd met last week in Mumbai to discuss the issue.

"There are still some issues that are unresolved but we have one month as the petroleum product bill is paid on a monthly basis," an executive who attended the meeting told Business Standard.

The proposed step is fraught with risks. If prices continue to rise, the public sector oil marketing companies will gain as they will have to pay lower prices. However, if prices fall, the companies lose money.

"Hence, a consensus needs to be achieved before any decision is taken," an official said.

Companies like Indian Oil, Bharat Petroleum, Hindustan Petroleum and Reliance sell retail products through their marketing arms. However, private players, including Reliance, sell some of their products to public sector marketing companies to take advantage of their huge network.

"Reliance till now has not agreed to sell its products to oil marketing companies at a discount as a result of which we are looking at measures to contain our losses," a source said.

Sources said even last year, Reliance agreed to give discounts of Rs 750 crore only in July. RIL was to supply 1.13 million tonnes of kerosene and oil to the marketing companies during 2005-06.

Last year too, the public sector oil marketing companies had frozen prices in March.

The companies have been burdened with huge under recoveries due to selling of products like kerosene and domestic cooking gas below their cost prices.The under recoveries are expected to touch Rs 26,000 crore during 2005-06.