Govt to give oil companies Rs 30,000-cr relief
New Delhi   19-Nov-2011

The government will not go for an immediate increase in the prices of regulated petroleum products like diesel, domestic LPG and kerosene, even as Prime Minister Manmohan Singh’s intervention has prompted authorities to seek ways to provide relief to the oil marketing companies (OMCs) — through a cash compensation of Rs 30,000 crore.

It is now learnt that a hike in the near future is unlikely even in the case of decontrolled petrol.

A government official said on Friday that the Prime Minister has written to the Finance Ministry to provide relief to OMCs. The PMO has made a reference to act urgently. “The demand for second supplementary grant is about Rs 30,000 crore. The finance ministry can provide it during the winter session of Parliament,” he told Business Standard.

Later, a senior petroleum ministry official said the finance ministry had agreed to provide Rs 30,000 crore in the second supplementary. However, that “will be enough only for the first two quarters of this financial year”. The OMCs will need more for the second half, he added.

All isn’t well with the country’s OMCs. IndianOil, Bharat Petroleum and Hindustan Petroleum incurred an under-recovery or revenue loss of Rs 64,900 crore in the first half of the current financial year (Rs 43,527 crore in Q1 and Rs 21,833 crore in Q2). At this, the finance ministry had issued a letter assuring Rs 15,000 crore during the first quarter, but the actual release has yet to be made. That apart, last week, another sanction letter for Rs 15,000 crore was issued.

So, the actual release of the total Rs 30,000 crore is yet to happen. That has caused the borrowings of the OMCs to touch an all-time high of around Rs 131,000 crore. The administrative delay has also dented the profitability of these companies: all three of them reported huge losses during both quarters.

The Budget had provided for Rs 20,000 crore of subsidy this financial year. However, that has been accounted in the books of last financial year.

The OMCs are currently incurring an under-recovery of Rs 10.17 on every litre of diesel, Rs 25.66 on kerosene and Rs 260.50 on per LPG cylinder. The loss is compensated through a mix of cash subsidy from the government (usually half of the gross loss) and discount on crude oil from upstream companies like ONGC and Oil India (usually one-third). The rest is absorbed by the oil marketers.

While the actual loss of the OMCs from three products in the first six months of the fiscal is Rs 64,900 crore, the number for the whole financial year is projected at Rs 132,000 crore. This is against an actual loss of Rs 78,190 crore in the last financial year.

The Indian basket of crude oil, which had averaged $85.09 during the last fiscal, has averaged at $110 per barrel — up 30 per cent. The situation has also been aggravated by the sharp depreciation in the Indian rupee vis-a-vis the US dollar in the current financial year. Rupee has depreciated from the level of Rs 44.37 in April to Rs 50 in the current month.

Earlier this month, the government had increased petrol prices up to Rs 2.80 a litre, but rolled it back up earlier this week to Rs 2.25 a litre after global prices calmed and political pressure rose.