Diesel price may be hiked by Rs 3-5 a litre, LPG by Rs 50

A 25 percent drop in rupee value has resulted in losses on diesel sales widening to Rs 10.22 per litre despite prices being raised by 50 paise a litre every month since January.

Updated: Aug 31, 2013, 16:56 PM IST

New Delhi: Diesel prices may be hiked by Rs 3-5 per litre, kerosene by Rs 2 and LPG by Rs 50 per cylinder as Oil Minister M Veerappa Moily urged Prime Minister Manmohan Singh to take steps to tackle a record Rs 180,000 crore of losses arising from dipping rupee and surging oil rates.

Moily, who had on Thursday met Finance Minister P Chidambaram on the issue, on August 30 wrote to Singh saying without a price increase the government will have to shell out a record Rs 97,500 crore to subsidise diesel and cooking fuel.

"If the present position persists, the total under- recovery (revenue loss) would reach to a level of Rs 180,000 crore in the current financial year as compared to Rs 161,000 crore during 2012-13," he wrote to the Prime Minister.

A 25 percent drop in rupee value has resulted in losses on diesel sales widening to Rs 10.22 per litre despite prices being raised by 50 paise a litre every month since January.

This coupled with Rs 33.54 a litre loss on kerosene and Rs 412 on sale of ever 14.2-kg cooking gas (LPG) cylinder, the total revenue loss this fiscal comes to Rs 180,000 crore, he said adding even after upstream firms like ONGC chip in Rs 70,500 crore, a gap of Rs 97,500 crore would be left.

An increase in rates is possible after monsoon session of Parliament ends on September 6.

Moily, who sent an almost identical note to Chidambaram, said a one rupee increase in diesel price will cut loss by Rs 4,522 crore in remainder of current fiscal while a Rs 3 per litre increase would trim losses by Rs 13,565 crore. If rates are raised by a one-time Rs 5 per litre, the losses would be cut to Rs 29,390 crore.

The hikes proposed are one-time and are outside monthly revision in rates of 50 paisa happening since January.

Similarly, a Rs 50 per cylinder increase in LPG rates would trim cooking gas losses by Rs 2,604 crore. Besides, a possible Rs 2 per litre hike in kerosene price would cut losses by Rs 1,014 crore. The three price increases together would bring down government's subsidy outgo to Rs 50,928 crore, he argued.

"I would like to bring to your kind notice that the consistent rupee depreciation has a severe impact on the under-recovery of the oil marketing companies (OMCs) and consequently on their financial health," Moily wrote to the Prime Minister and Chidambaram.

Every one rupee depreciation of Indian rupee against US dollar increases the under-recovery (loss) of the public sector OMCs on sale of diesel, PDS kerosene and domestic LPG by about Rs 7,900 crore per annum, he said.

During 2012-13, oil firms lost Rs 161,029 crore on selling diesel and cooking fuel at government controlled rates. To make up for this, the government gave Rs 85,000 crore cash subsidy while upstream firms like ONGC gave Rs 60,000 crore. The balance was absorbed by fuel retailers.

"The financial health of OMCs has been deteriorating over the years. During the year 2012-13 even after getting almost 100 per cent compensation, the OMCs could report a combined profit after tax (PAT) of mere Rs 8,552 crore, which was only 0.95 per cent of their combined turnover of Rs 892,653 crore," he said.

The combined borrowing of the three retailers at the end of March 2013 was Rs 138,522 crore and their interest burden rose to Rs 10,254 crore. "The continuous increase in the borrowings have resulted in deterioration of the debt-equity ratio of OMCs over the years.

Indian Oil Corp's (IOC) debt-equity ratio, which is the number of times debt over equity, has risen from 0.88 in March 2010 to 1.32 in March 2013 while for Hindustan Petroleum Corp (HPCL) soared from 1.84 to 2.46.

Moily said in spite of the decision to authorise retailers to increase the price of diesel in the range of 40 to 50 paisa per litre per month and after seven price hikes since January 18 totaling Rs 4.25 per litre, the current under-recovery of Rs 10.22 per litre is higher than the level of prevailing loss of Rs 9.03 a litre in January.