Dip in crude prices pares oil PSUs’ loss
New Delhi   04-Sep-2010

With crude oil prices in the international markets coming down in the last fortnight to around $ 72- a- barrel, the projected under- recoveries of the public sector oil companies for this financial year have been scaled down to ` 50,000 crore.

According to official figures, the average price of Indian crude imports is working out to around $ 74- a barrel for the current quarter, down from $ 78- a- barrel recorded for the first quarter.

A senior petroleum ministry official told MAIL TODAY that the oil companies are not making any revenue loss on the daily sale of petrol at this point while they are losing ` 1.70 a litre on diesel, ` 14.85 per litre on kerosene and ` 163 on each cylinder of LPG sold to households.

The situation now is much better than the first quarter when crude oil prices in April and May were in the $ 80- 85- a- barrel range and the projected under- recoveries for the year stood at ` 90,000 crore. The average price of Indian crude imports worked out to over $ 78 per barrel for the first quarter as prices cooled down to some extent in June and the projected under- recoveries were scaled down to ` 72,300 crore for the year.

After the Centre allowed the rise in prices of petrol, diesel, LPG and kerosene on June 25, the expected under- recoveries had come down to ` 53,000 crore.

The situation now appears to be better as oil prices have fallen in recent weeks with the US economic growth figures turning ‘ out to be lower than expected.

However, officials are keeping their fingers crossed as crude oil prices tend to play spoilsport each time there are signs of the global economy strengthening.

According to an IndianOil (IOC) official, speculators also have a role to play in destabilising the prices as there are no major fluctuations in demand by actual consumers, vis- à- vis the available supply of crude in the international market.
IOC, Bharat Petroleum Corp Ltd ( BPCL) and Hindustan Petroleum Corp Ltd ( HPCL) had incurred under- recoveries of around ` 20,000 crore due to the sale of petroleum products at below market prices.

Upstream oil firms ONGC and Oil India Ltd ( OIL) and natural gas marketing firm GAIL had together contributed ` 6,691 crore as one- third of the subsidy burden that they have been asked to bear by the government.

ONGC and OIL gain when crude oil prices rise and the government is of the view that they should pay up part of this for the subsidy burden.
While the government is expected to pick up the major chunk of the remaining twothirds of the subsidy amount, the downstream oil marketing companies will also have to bear part of the burden.

However, the finance ministry, which is keen to keep the fiscal deficit in check, has not reimbursed any money to the oil firms this fiscal. As a result IOC, BPCL and HPCL had to show net losses on their books when they posted their first quarter results.

Market analysts see this delay as a corporate governance issue as the companies are listed on the stock exchange and investors get the wrong signal.

However, HPCL director (finance) B. Mukherjee told MAIL TODAY that the financial results of the public sector oil firms should not be viewed on a quarterly basis. The performance of the oil firms should not be judged on a quarterly basis but by the annual results since eventually the Centre’s contribution to the subsidy will come in.