'Oil firms' under-recovery losses mount to Rs 1, 86,000 Cr
New Delhi 24-May-2012
Coinciding with the end of the budget session of Parliament, IndianOil increased the petrol price by Rs 6.28 a litre, the biggest hike in recent times. The prices of other products -diesel, kerosene and cooking gas -have not been touched.
The hike comes despite the easing of international crude prices. India's crude import basket price as on Tuesday was $107 a barrel. In February and March, the price averaged $120.
The last time the petrol price was increased was in December, when the import basket price increased to $113.
However, international petrol prices have increased by 14.5 per cent. Prices of petrol or motor spirit have increased from $108.62 a barrel to $124.42 a barrel between December and April. India is largely self-sufficient in petrol with imports being just about two million tonnes a year. Although in principle petroleum marketing companies were given the freedom to price their products in June 2010, prices have continued to be determined by the government. According to the companies, the increase in the petrol price should have come long ago. The delay has led to increased under recoveries. Since the beginning of April, the public sector petroleum companies lost Rs 2,321 crore due to under-recoveries in petrol.
This time the increase in the price has largely been driven by the steep depreciation of the rupee. The currency has lost 11 per cent since the beginning of this year. An IndianOil statement said, “The combined effect of changes in international MS price and exchange rate has esulted in an increase in under-recovery since last price change.” However, other petroleum products were left untouched. Any decision to hike the price of diesel, kerosene and liquid petroleum gas would have to be taken by the ministry.
Since then the losses due to under-recoveries have mounted to Rs 1, 86,000 crore. IOC alone would have an under-recovery of Rs 1, 00,000 crore. The under recovery in diesel is estimated at Rs 13.64 a litre at current import prices. On kerosene and LPG the losses are Rs 31.41 a litre and Rs 479 a cylinder. Since these products are subsidised, the under-recoveries translate into a fiscal burden on the government.
A BPCL spokesperson said that so far his company had received Rs 19,671 crore as cash subsidy from the government and around Rs 12,957 crore from the upstream companies like ON GC, Oil India and Gail from under-recoveries in 2011-12. In the fourth quarter, the government gave a cash subsidy worth Rs 9,153 crore and the upstream companies Rs 4,334 crore to BPCL.
For the state governments, however, petrol prices are expected to be revenue positive. This is because petroleum products are taxed on an ad-valorem basis. Accordingly, with an increase in the price of petrol, the revenue receipts also increase proportionately. State governments realise at least 25 to 40 per cent of their tax revenues from petroleum products. Petrol however contributes barely 5 per cent of the revenues.
The steep increase has generally been supported by industry bodies. Ficci said the increase had become inevitable with the continued slide in rupee.
Carmakers are not happy about the petrol price increase when their sales were under pressure. General Motors vice-president P Balendran said, “The inventory build-up for petrol cars will further increase. With indications of deregulation of the diesel price, the coming days are not too good.” Expectations are that car sales growth will slump to a single digit this year, instead of the earlier projection of 10 to 12 per cent growth. While petrol cars will sell with even higher discounts, the skew in demand towards diesel cars will only increase. Already high petrol prices have taken a toll on petrol car sales which fell by 15 per cent last year, while diesel vehicle sales surged by 21 per cent. Auto stocks, including Hero MotoCorp, Ashok Leyland, Bajaj Auto and Tata Motors, went down by 1.86 per cent, 1.82 per cent, 1.37 per cent and 1.19 per cent, respectively, on Wednesday. Maruti shed 0.17 per cent.
Petroleum stocks, however, rose. Gail, Oil India, IndianOil and HPCL gained 3.19 per cent, 1.02 per cent, 0.89 per cent and 0.59 per cent, respectively.
Geojit BNP Paribas securities research head of Alex Mathews said, “Oil marketing companies made minor gains as they had expected the government to announce their decision to allow fuel price hike by the end of this week.”
Destimoney Securities chief executive officer Sudhip Bandyopadhyay said, oil marketing companies could see some buying momentum as the announcement would help them reduce the subsidy burden.
“The quantum of increase was completely unexpected. This is going to adversely impact the sluggish growth that the automobile segment is currently witnessing,” said Nigel Wark, executive director (marketing and sales) at Ford India.
Shares of automakers and oil marketing companies were already expecting some announcement on fuel price hike in near future.
