Mumbai: Defending the government decision to cap the number of subsidised cooking gas cylinders and increase diesel price, oil major Indian Oil Corporation Friday said the move will help oil marketing companies improve their credit ratings and raise working capital.
Terming the decision to hike diesel price by Rs 5 per litre and cap the subsidised LPG at six per family a year as "bold steps and a big relief for oil marketing firms," IOC Chairman R S Butola said the hike was necessary in view of rating agencies downgrading the outlook of the oil company which would have created problems in raising funds.
"Ratings agencies have already downgraded our outlook... if this was to be affected in actual sense, then it would have serious problems...From that point of view it is a positive step," Butola told reporters after the annual general meeting here Friday.
He also expressed hope that the ceiling on subsidised cylinders will not hit the household budgets much because as many as 44.5 percent consumers use less than six cooking gas cylinders per year.
"Around 44.5 percent of population consumes less than six cylinders a year," Butola told shareholders.
Defending the government move to cut oil subsidies, he said such discounts promote inefficient use and put stress on fiscal and trade deficits and "all these call for serious structural and policy changes".
Quoting government figures, he said the diesel price hike would reduce subsidy burden by Rs 15,000 crore and capping the number of subsidised cylinders another Rs 5,300 crore leading to subsidy burden going down by Rs 20,300 crore this fiscal.
"On a yearly basis, the overall subsidy burden will come down by Rs 40,000-45,000 crore," Butola said, adding with the rising crude prices, if the government had not taken this decision, the subsidy bill could have touched Rs 2.05 trillion this fiscal.
Prior to the price hike, under-recovery from diesel was Rs 17.12 a litre. Now, with the hike of Rs 5 per litre, the company would realise Rs 3.50 a liter more and the remaining amount would go towards excise duty.
When asked whether the company would look at hiking petrol price, which escaped the increase due to the government slashing excise by Rs 5.50 a litre, Butola said all options were open.
"We are free to increase or decrease petrol price. There have been times when we have not passed on the increase in crude prices to the consumers despite rise in international prices. But there are no restrictions per se to do," he said.
IOC lost Rs 950 crore in the first quarter and subsequently there have been some more under recoveries from petrol, he said adding oil PUSs take into account the overall economic scenario like inflation before effecting any hike.
First Published: Friday, September 14, 2012, 20:16