Price freeze may cost oil firms Rs 10,000 cr

Petrol, diesel prices not to be raised till US polls.

Oil companies are estimating an under-recovery of over Rs 10,000 crore during the current financial year, with the government deciding against allowing oil companies to increase petrol and diesel prices for the fortnight beginning November 1.

Executives in state-owned oil companies estimated the industry's under-recovery from petrol and diesel sales during the first half of the current financial year at nearly Rs 5,000 crore.

They said the companies needed to increase the price of petrol by over Rs 2 a litre and diesel by over Rs 4 to wipe out the under-recoveries. Using the price-band mechanism, the oil companies wanted to raise petrol prices by Rs 1.22 a litre and diesel by Rs 2.24.

The annualised under-recovery from auto fuels and cooking gas and kerosene could touch Rs 20,000 crore, with the oil companies estimating under-recoveries of Rs 158 per cooking gas cylinder and those from kerosene at Rs 11.28 a litre.

The average cost of crude oil for Indian refiners, referred to as the Indian basket, has shot up to $37 a barrel during April-October this year, as against $27 a barrel in the first seven months of 2003-04. The cost of the Indian basket is estimated at $45 a barrel at present, while the average for October was around $43 a barrel.

In addition to raising prices of automobile fuels, oil marketing company executives said they had approached the government, seeking to encash their oil bonds. Indian Oil, for instance, wants to redeem its oil bonds of Rs 2,300 crore to help it improve its cash flow. No decision has been taken so far.

The oil marketing companies also want the government and the upstream oil companies to release their share of the oil subsidy burden monthly instead of quarterly. Oil marketing companies, upstream players and the government share the subsidy burden of cooking gas and kerosene proportionately.

The executives said the two measures would help them reduce their borrowings, which went up at the start of the quarter and then decreased after the government released the funds.

The government has decided against raising prices following the suggestion from the Left parties to wait till the US presidential elections. The Left expects the elections to have a sobering effect on international crude oil prices.

Petroleum Minister Mani Shankar Aiyar told reporters that excess volatility in international oil was perhaps influenced by measures the US was supposed to take to check its fiscal and trade deficits but which had not been taken because of the presidential elections. "There is a general perception that crude oil prices will ease," he said.

CPM leader Sitaram Yechury told reporters the government should look at all options before hiking fuel prices. "A lot of speculation is (going on) around the US presidential poll. International crude oil prices are likely to come down once it is over. Maybe there will be no need to hike the prices," he said.

Though public sector companies have been given the freedom to alter prices based on international movements, prices of petrol and diesel have only been increased thrice in the last 10 months, with the last revision on July 31.