Oil cos use 40% of FY13 subsidy allocation in Apr

RUNNING OUT?

OMCs Will Exhaust Quota In Q1, Say Analysts

Mumbai: State-owned oil marketing companies (OMCs) have recorded a Rs 17,000-crore deficit in April, 2012 by selling fuels such as diesel, LPG and kerosene below cost. These under-recoveries, which are made good by the government, account for over 40% of the Rs 40,000-crore budgeted oil subsidy for 2012-13. 

    Companies like Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) are together losing over Rs 520 crore per day on sale of sensitive petroleum products with effect from May 1, according to data compiled by the Petroleum Planning and Analysis Cell (PPAC) under the Ministry of Petroleum and Natural Gas on Tuesday. 

    Oil firms claim they lose Rs 480.50 per cylinder on sale of cooking gas, Rs 14 per litre on diesel and Rs 31.5 per litre on kerosene. "At the current strike rate, the under-recoveries of OMCs will overshoot the budgeted subsidy by the government within the first quarter itself. The budgeted subsidy is likely to fall significantly short of the required amount unless the government revises prices with immediate effect. I don't think finance minister will be able to meet his target of keeping food and fuel subsidies below 2% of the GDP," said a Mumbai-based oil analyst. 

    An empowered group of ministers, led by finance minister Pranab Mukherjee, is likely to meet by the end of May to consider raising the prices of diesel, LPG and kerosene in order to help fuel retailers IOC, HPCL and BPCL cut their losses and to restrict the outgo of government subsidy. 

    "A price hike is eminent, but it will only happen once the Finance Bill is passed in the Parliament. The are other important bills to be passed as well, so any hike till the Parliament is in session is unlikely," said the chairman of an OMC, adding that he is expecting a revision in fuel prices by the end this month. 

    "We are not worried about regulated petroleum products like diesel, kerosene and LPG, as the government compensates us for the losses. Our biggest concern is petrol on which we are losing Rs 9 per litre and will not receive a single penny from the government as it is a decontrolled petroleum product," said the director on the board of another OMC based in Mumbai. 

    Echoing similar feelings, a finance director on the board of another state-owned oil firm said, "We have already started feeling the heat. We are facing working capital constraints and have to resort to borrowings heavily. If we are not allowed to increase prices immediately, we will face problems in buying crude — that could lead to supply disruptions." 

    Prime Minister Manmohan Singh on Saturday signaled that India needed to rationalize the prices, but the common man would be insulated from its effects, meaning that the prices of the sensitive petroleum products may be partially de-controlled.