ONGC, OIL likely to foot cooking fuel subsidy bill
Mumbai 26-Jul-2010
The two government-owned oil producers, Oil and Natural Gas Corp (ONGC) and Oil India (OIL), will continue to share the petroleum-related under-recoveries even after petrol and diesel prices are fully freed up, IndianOil (IOC) said.
The fuel retailer also predicted a 43% drop in its future under-recoveries due to the recent price hike by the government.
IOC, which announced a Rs 3,388 crore loss for the first quarter, said the upstream companies footed a third of the total under-recovery expenses during the quarter and will continue to contribute towards the shortfall in the future.
Thanks to government control over the end-prices of petroleum-based fuels, retailers such as IOC and HPCL regularly report huge losses that later are made good by the government and oil producers.
However, deregulation of the petrol prices and the impending freeing up of diesel had raised the hopes that the subsidy burden on oil producers will lapse since no subsidy would be provided for these two items after deregulation. Under the current system, ONGC and OIL have to foot the bill for under-recoveries for petrol and diesel only leaving cooking fuel for the government to take care of.
"For the first quarter, the share of the upstream was one third of the total under-recoveries, including those from cooking fuels," said SV Narasimhan, the finance head of India's largest company and oil retailer, IOC.
"We expect that, in some form or the other, they will continue to share in the overall under-recovery," he said, announcing IOC's first quarter results.
Meanwhile, to strengthen the government's hand in dealing with the opposition in the parliamentary session starting on Monday, the oil retailers were directed to announce their quarterly results as soon as possible, leading to IOC's weekend board meeting. On Friday, HPCL too had announced a net loss of Rs 1,884 crore.
According to IOC, the recent price hike by the government will help reduce its projected under-recoveries for the remaining 9 months by 43%, from around Rs 33,000 crore to just around Rs 18,800 crore, assuming stable crude prices.
The government recently raised prices of diesel, cooking gas and kerosene, while removing petrol from the controlled price regime.
Interestingly, petrol - the commodity that was freed from price control - contributed only 9% of the first quarter under-recoveries. Out of the Rs 11,000 crore lost last quarter, losses on diesel sales accounted for Rs 4,190 crore while cooking fuels contributed under-recoveries of Rs 5,797 crore.
IOC said it is open to a free pricing regime in the future, when asked whether it was in conformity with competition laws for the 3 state-owned firms to fix their petrol price at the same level. Chairman BM Bansal also said the company is unlikely to fix a particular date for revising its petrol price, to prevent dealers from hoarding petrol.
