Petrol price hike can't wait any longer: OMCs
New Delhi   18-Apr-2012

Fed up with the Centre's “indecision” on allowing an increase in fuel prices in the face of the rising international crude prices, the oil marketing companies on Tuesday virtually threatened to increase petrol prices by Rs. 8.04 a litre, asking the government to either cut excise duty on petrol and give them Rs. 49 crore a day in compensation.

In a joint representation, the oil marketing companies asked the government to bring petrol back under the regulated regime. Petrol prices were deregulated in June 2010. With a 20 per cent value-added tax, the price of petrol, if an increase is effected, will go up by Rs. 9.60 in New Delhi.

“We have been very patient, not raising prices since December despite our cost of production spiralling. But there is a limit to which we can borrow money and produce fuel for the country,” IndianOil Chairman R. S. Butola said.

In a formal statement, IndianOil pointed to the anomalies in the subsidy mechanism and highlighted related issues.

IndianOil, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited are losing Rs. 49 crore a day on petrol sales alone. They are losing another Rs. 573 crore a day on the sale below cost of diesel, domestic LPG and kerosene.

Mr. Butola said the oil marketing companies lost Rs. 745 crore in the first 15 days of April in revenue from petrol sale. “We have suggested that the government temporarily end deregulation and give subsidy to make up for the difference between the cost of production and the sale price. Alternatively, the government can cut the excise duty of Rs. 14.78 it collects when a consumer buys one litre of petrol.”

The States levied VAT or sales tax, ranging from 15 to 33 per cent (Rs. 10.30- Rs. 18.74 a litre), and this too could be cut to avoid a price increase. “If our suggestions are not accepted, we will have no option but to increase the price of petrol by Rs. 8.04 a litre (excluding the State levies) with immediate effect,” it said.

The last revision of petrol price was effected on December 1, 2011. Then, IndianOil cut the price by Rs. 0.65 a litre on top of an earlier reduction of Rs.1.85 on November 16 last.

“The international petrol prices have since gone up progressively and stand at $132.45 a barrel in the current pricing period. This is much higher than the price of $109.03 a barrel at which IndianOil and other oil marketing companies are selling petrol,” the statement said.

The company's inability to effect the hike between December 16, 2011 and March 31, 2012 resulted in Rs.1, 036 crores of under-recoveries for IndianOil alone, and Rs. 2,287 crore for all companies. The statement said IndianOil and other companies approached the government several times for revising petrol prices, suggesting that motor spirit be brought within the ambit of controlled products temporarily, or statutory levies on it lowered to the extent of loss being suffered by the companies owing to their inability to pass on the increase in prices to consumers.

“The current situation is not sustainable and therefore cannot continue. The continuation of such [a] pricing [formula] will only impede the ability of the company to import crude oil and may affect the supply-demand balance. The company is awaiting the government's response to its requests; should no relief come, it will have no option but to effect the aforesaid increase in motor spirit prices,” it said.