IOC wants upstream firms to share revenue loss

Indian Oil Corporation (IOC), country's largest downstream player in the petroleum sector, has asked the government to direct upstream companies including Oil and Natural Gas Corporation (ONGC) to share 50 per cent of the revenue loss in the April-June quarter.

Upstream companies had shared one-third of the revenue loss in 2004-05 (April-March).

"It (net profit for the first quarter) all depends on whether under recoveries (revenue loss) for the first quarter is shared by upstream oil companies," the IOC official said.

"If revenue loss is not shared, IOC, Hindustan Petroleum Corporation and Bharat Petroleum Corporation will end first quarter with a net loss."

Revenue loss has arisen as state-run oil marketing companies have been selling petrol, diesel, kerosene and cooking gas below international prices.

Despite dismantling of the administered price mechanism since April 2002, the government still controls the pricing of these oil products.

"We have written to the government. If the government can get upstream companies to share part of revenue loss, we will have some profit in the first quarter," the Indian Oil official said.

Retail prices of the four oil products have not been hiked since November even as the price of Indian basket of crude oil has skyrocketed.

In November, the average price of Indian basket was $38.81 per barrel while it closed at $51.26 a barrel on June 3.

The price of the Indian basket of crude oil had touched an unprecedented high of $52.8 a barrel on April 4.

In April-May alone, the industry's revenue loss on the four products is pegged at Rs 6,770 crore, which includes Rs 2,850 crore on diesel and Rs 2,265 crore on cooking gas.

If prices are not raised in June, revenue loss for the full quarter could rise to around Rs 9,000-9,500 crore, the IOC official said.

"The under recovery on diesel has gone up to around Rs 3.5 per litre from Rs 2 as global diesel prices have risen to $60-$61 a barrel. The under recovery on petrol, however, continues to be around Rs 2.3-2.5 a litre," the IOC official said.

Last month, P Sugavanam, director (finance), IOC, had said that his company may suffer a net loss of Rs 600 crore in the April-June quarter if domestic retail prices of oil products were not hiked.

The IOC official said there was no indication from the government so far on increase in product prices, especially petrol and diesel. There is little chance of a hike in cooking gas and kerosene prices.

"The prime minister has to take the decision now. We have already presented our case to the government and even its Left allies," the official said.

The Left parties, which support the United Progressive Alliance government from outside, are opposed to any hike in retail prices of oil products. They want the government to slash duties and highway cess to reduce the impact of high global crude oil prices.

Last week, Singh met Left party leaders to convince them for a hike in oil product prices.

That sinking feeling

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• IOC has asked the government to direct upstream companies to share 50 per cent of the revenue loss in the April-June quarter.
• Upstream companies had shared one-third of the revenue loss in 2004-05 (April-March)
• If revenue loss is not shared, IOC, Hindustan Petroleum Corporation and Bharat Petroleum Corporation will end first quarter with a net loss
• Revenue loss has arisen as state-run oil marketing companies have been selling petrol, diesel, kerosene and cooking gas below international prices
• Despite dismantling of the administered price mechanism since April 2002, the government still controls the pricing of these oil products