Oil firms see red over prices

Cabinet puts off decision; IOC, BPCL and HPCL stare at first-quarter losses

The country's three public sector oil marketing companies may be pushed into the red during the April-June quarter if the government does not decide on revising the retail prices of petroleum products.

As the government today decided to defer a decision on the issue, oil company executives said Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation would make losses if the Centre did not increase the prices of petroleum products or change the existing burden-sharing formula.

Briefing reporters after a meeting of the Cabinet Committee on Economic Affairs, Finance Minister P Chidambaram said the issue would be taken up again by the Cabinet on Saturday.

He said a decision could not be taken because some senior ministers were not present during the meeting. Among those who were absent were Railway Minister Lalu Prasad and Agriculture Minister Sharad Pawar.

The revenue loss of the PSUs for the April-June quarter stands at around Rs 4,300 crore for petrol and diesel, and Rs 5,000 crore for LPG and kerosene.

Indian Oil Corporation, the country's biggest oil company, will for the first time close a quarter with losses of around Rs 1,000 crore even if upstream companies Oil and Natural Gas Corporation, Oil India and Gail India share IOC's under-realisation.

The company will lose Rs 3,000 crore on kerosene and LPG during the quarter while its losses on petrol and diesel will be Rs 2,000 crore.

IOC has already asked the government to direct upstream companies to share 50 per cent of the revenue loss in the April-June quarter.

According to the loss-sharing formula, one third of the losses incurred by the marketing companies on LPG and kerosene is shared by upstream companies.

The burden of sharing is decided on the basis of gains made by each upstream company. This is because of the increase in the international prices of crude and the payment to upstream companies of the import parity price for crude oil produced by them.

The government had, in July 2004, granted oil marketing companies the freedom to set their retail prices. In any fortnight, the companies were free to set the retail prices in accordance with the previous fortnight's average international price for petrol and diesel, without needing any approval of the government, provided it was within a reasonable band.

The price band was fixed at plus and minus 10 per cent around the mean of last three months' and last one year's rolling average prices.

It was decided that the finance ministry would reduce excise duty on petrol and diesel in consumer interest in case C&F prices breached the ceiling owing to high volatility in international oil prices.

The petroleum ministry, it was decided, would inform the finance ministry in case the price band breached the floor.