The spectre of 2008 crisis is staring at the oil marketing companies (OMCs) as the Indian basket of crude oil touched a 33-month high of $120.36 per barrel on Friday. Moreover, the government controlled companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum — have been prevented from taking price increase of auto and cooking fuel.
The companies are losing a record Rs 17 on every litre of diesel and Rs 4 on petrol that was de-regulated in June last year. The loss of kerosene is Rs 28 per litre while for domestic LPG, loss is Rs 315. The price of diesel, kerosene and LPG that together accounts for over 60 per cent of petroleum product consumption, has not been increased since June 25 last year.
Rising inflation prevented the government from increasing prices last year. While inflationary pressure eased this year, polls in 5 states has delayed the increase even as oil companies continue to bleed.
A government decision on allowing the companies a fuel raise is expected to come only after the assembly elections to 5 states are completed in May. The country's biggest marketer of petroleum products, Indian Oil, is losing around Rs 270 crore every day on selling petroleum products below the international price.
“It is possible that a 2008-like situation can reoccur though it all depends on global factors. We have requested the government that we should be adequately compensated, otherwise our investments will suffer,” said G C Daga, director (marketing) of Indian Oil, the biggest oil marketing company.
In 2008-09, the OMCs incurred a record under-recovery of Rs 103,000 crore when crude hit a record $147 per barrel in July 2008. Analysts expect the current year’s under-recovery to surpass the 2008-09 number if crude remains at these levels.
The OMCs have incurred a gross under-recovery of over Rs 47,000 crore for the first three quarters of the last financial year. The under-recovery for the last quarter is estimated at about Rs 37,000 crore and the OMCs are expected to declare a subdued result with marginal profit on account of higher refining margins. “The under-recovery will be higher in the current financial year if the rising trend continues,” said S K Joshi, director (finance), BPCL.
The Indian basket of crude oil has averaged around $117.10 per barrel so far in April, up 5.76 per cent from an already high base of $110.72 per barrel in March. The 2010-11 fiscal average of $85.09 per barrel was 22 per cent higher than the 2009-10 average. The Indian basket represents published freight on board prices of average of Oman/Dubai crude for sour grade and Brent for sweet grade in the ratio of 67.6:32.4.
OMCs are required to sell diesel, kerosene and liquefied petroleum gas at government-subsidised prices, resulting in losses. These losses are partly compensated through a mix of cash subsidy from the government and discounts from upstream companies like ONGC and Oil India and partly absorbed by the OMCs.
