OMCs may lose 45,000 cr for selling fuels below cost

Last Updated: Friday, September 11, 2009 - 12:58

New Delhi: State-run retailers IOC, BPCL and HPCL may lose about Rs 45,000 crore on selling auto and cooking fuels below cost this fiscal, two-third of which will be compensated by the government by issuing bonds.

"Out of these under-recovery (revenue loss), about Rs 17,000 crore would be on kerosene alone. Another Rs 12,000 to Rs 13,000 crore would be on domestic LPG and the remaining Rs 15,000 to Rs 16,000 crore would be on account of auto fuels petrol and diesel," Petroleum Secretary R S Pandey told reporters.

Indian Oil (IOC), Hindustan Petroleum (HPCL) and Bharat
Petroleum (BPCL) lose Rs 4.69 per litre on petrol and Rs 3.09
a litre on diesel. They sell LPG at a loss of Rs 158.55 per
14.2-kg cylinder and kerosene at Rs 17.15 per litre loss.

The three firms lose about Rs 170 crore per day and may
end the 2009-10 fiscal with Rs 44,274 crore revenue loss if
international crude oil prices were to stay at the current
level of around USD 70 per barrel.

Pandey said the entire revenue loss on domestic LPG and
kerosene would be met by the government possibly through issue
of oil bonds.

The same on petrol and diesel would be compensated by
upstream firms like ONGC by way of discounts on crude oil and
LPG they sell to the three retailers.

"Oil marketing companies (IOC, BPCL and HPCL) may have to
bear a part of the under-recovery on auto fuels," he said,
adding the proportion has not yet been decided.

Pandey said the government would balance the interests of
consumers who do not want fuel prices to be raised, and the
oil companies` financial health in deciding the subsidy
sharing plan.

IOC, BPCL and HPCL, he said, had last year not been asked
to bear any part of the losses as they did not make any

"This year we have to look at (their) profitability. May
be to some extent, they will have to bear under-recoveries on
petrol and diesel," he said.

Of the Rs 103,292 crore revenue loss on fuel sales in
2008-09 fiscal, 68 percent was met by the government through
issue of oil bonds. Upstream firms ONGC bore Rs 28,225 crore,
GAIL India Rs 1,781.2 crore and Oil India Ltd Rs 2,936.7

Pandey said the government has formed a five-member
committee headed by Kirit S Parikh to suggest reforms in
pricing of auto and cooking fuels.

"The Expert Group headed by Parikh will submit its
recommendations in three months," he said.

Other members of the committee are Indian Council for
Research on International Economic Relations chairperson
Isher Judge Ahluwalia, National Council of Applied Economic
Research Director General Suman K Bery and the secretaries of
the ministries of finance and petroleum.

The panel headed by Parikh, a former member (energy) of
the Planning Commission and author of the Integrated Energy
Policy, will be the third committee on the issue as
recommendations of previous C Rangarajan committee and B K
Chaturvedi committee were not fully implemented.

Pandey said the new group will "advise on a viable and
sustainable system of pricing of petroleum products" and
examine the current pricing policy of petrol, diesel, domestic
LPG and kerosene.

The group will examine the current taxation structure as
well as the financial health of the public sector firms to
suggest a "viable and sustainable pricing policy".

The terms of reference of the new group state that it
will "examine the current taxation structure on the sensitive
petroleum products, with particular reference to Petrol and
Diesel and make recommendations to rationalize the taxes
levied by the Central and state governments."

Besides, it would go into the "financial health of the
public sector oil marketing companies and to recommend ways of
compensating them for their under-recoveries in case they are
not permitted to charge market prices as a result of
government’s intervention, in order to protect consumers."

Prime Minister`s Economic Advisory Council Chairman C
Rangarajan had submitted the report in 2006, while B K
Chaturvedi, Planning Commission member, had given his report
in 2008.

Bureau Report

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First Published: Friday, September 11, 2009 - 12:58

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