Profits shown only for better ratings: Oilcos
New Delhi 04-Jun-2012
State-owned oil companies have vehemently denied that they are making huge profits and asserted that only the government subsidy helped them to report a net profit of less than 1% of their turnover in 2011-12. This profit is reported in order to maintain creditworthiness, the companies said in a joint statement on Sunday.
The assertion by the three companies — IndianOil, Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) — has come in the wake of a nationwide debate on whether they have overstated the under-recoveries from sale of fuels and if it was right on their part to expect the government to fully meet these when their other income streams allow them to make profits. This concern was also echoed by a Cabinet minister (Vayalar Ravi) who last week wrote to oil minister Jaipal Reddy, suggesting a closer look at the oil companies' financials.
However, on Sunday, home minister P Chidambaram came in support of the oil firms. Describing the petrol price hike as 'not acceptable but inevitable', Chidambaram justified the recent increase saying the supply of petrol and diesel could be affected if oil companies did not increase the price in line with international crude rates.
Chidambaram pointed out that the average international price of a barrel of crude oil was now $120 per barrel, compared with $20 during the NDA regime, forcing the government to increase the price. He said the government was giving a subsidy of R31.49 per litre of kerosene, R17.64 per litre of diesel and R480 per LPG cylinder.
Ravi had said the government should take a hard look at the claims of oil companies about their losses. “Apparently, the claim made by oil companies that they are running at a loss seems to be untrue. As a matter of fact, the expenditure of oil companies, including salaries, is among the highest in India and there is a perception that funds are being wasted,” the minister said.
Oil companies, however, countered the argument saying it is a false impression that they make huge profits. “On the contrary, the OMCs (oil marketing companies) have been incurring huge losses. The companies incurred losses due to sale of three products, namely diesel, domestic LPG and kerosene at highly subsidised prices,” they said.
The way oil companies compute their losses from selling fuel below cost has always been the subject of debate. Because of the regulated price as well as the fact that subsidy compensation is given only to state-owned companies, these blue-chip firms are protected from private competition. They, however, do not adjust any profits made from their refining business to offset the revenue loss from selling fuel at government-set prices.
Besides, the losses from selling fuel at regulated price is only the gap between the retail price in the country and the price one would have to give if fuel is imported (including taxes.) It has nothing to do with the cost of production.
The companies asserted that it is only after the assistance of Rs 83,500 crore from the government and Rs 55,000 crore from upstream oil companies ONGC, OIL and GAIL, totalling Rs1,38,500 crore, that they could declare nominal profits. “Had this assistance not been given, the three OMCs would have reported a combined loss of Rs1, 32,000 crore,” the companies said. They added that their combined borrowings have gone up from Rs97, 000 crore in March 2011 to Rs1, 28,000 crore in March 2012. Besides, their interest burden has gone up from Rs 4,700 crore in 2010-11 to Rs 9,500 crore in 2011-12, the companies said.
