Regulate petrol prices again: OMCs


India’s oil marketing companies (OMCs), weighed down by losses because they can’t sell petrol at market price despite the commodity being “deregulated”, have written to the government asking that the fuel be included in the so-called administered pricing mechanism.

OMCs Indian Oil Corp. Ltd, Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd are compensated by the government for selling diesel, kerosene and liquefied petroleum gas at government-fixed prices. They aren’t for petrol since June 2010, when the government allowed oil marketers to fix petrol prices. However, they still have to get the government’s approval to raise prices.

The head of an OMC said that he and the chiefs of the other OMCs had written to the government in January saying that since their companies were not being reimbursed for the losses suffered on selling petrol at what were effectively government-mandated rates, the government could consider exercising a rule that allows the so-called deregulation to be suspended during extraordinary times. “We are yet to hear from the government,” added this person, who did not want to be named.

The rapid increase in the price of Brent crude, by 11.06% since 1 January, has only exacerbated the situation for OMCs. Mint reported on 14 March that these companies may witness a significant jump in losses, to Rs2 trillion in the next fiscal year, on account of selling fuel below cost at state-mandated prices. Such an increase will impact the financials of the companies, which currently register losses of Rs439.50, Rs13.10 and Rs28.67 on a cooking gas cylinder, one litre of diesel and the same volume of kerosene, respectively. The government subsidizes these losses.

A senior executive at another OMC confirmed the development. He, too, did not want to be named.

The government wants to move away from administered prices and its intention was articulated in 2010 when, apart from deregulating petrol prices, it also increased the price of subsidized natural gas sold by state-owned firms to the same level as that of gas from Reliance Industries Ltd’s field in the Krishna-Godavari basin.

An oil ministry spokesperson declined to comment.

Despite the increase in the price of crude oil, petrol prices have stayed at the same level, largely because the government didn’t want them raised in the run-up to assembly elections in Uttar Pradesh, Uttarakhand, Punjab, Manipur and Goa. The prices were last raised on 1 December. The results of the polls were announced on 6 March.

According to the oil ministry, OMCs lose around Rs486 crore a day on account of selling petroleum products at government-mandated prices. The total losses on this account to be borne by refiners this fiscal are expected at Rs 1.32 trillion compared with Rs78,190 crore last year, according to the ministry. In the nine months ended December, they stood at Rs97,313 crore. The average price of crude oil in the Indian energy basket on 21 March was $123.62 (Rs 6,255) per barrel.

The government plans to cut its subsidy bill to under 2% of the gross domestic product in 2012-13, as announced by finance minister Pranab Mukherjee on 16 March.

Subsidy on petroleum products has made the biggest dent in the government’s balance sheet. The oil subsidy shot up 78% to an estimated Rs68,481 crore in the current fiscal year from Rs38,371 last year. The government has substantially reduced the budgeted amount for the oil subsidy to Rs43,580 crore in FY13.

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