Indian oil companies give final warning to government on petrol prices

Piqued by delay in getting a response from the government on petrol prices, state-owned oil companies have issued a final warning to the Government to act, before raising petrol prices by Rs 8 per litre.

“The current situation where oil companies have to import crude oil at a price of $121.29 per barrel (relevant for the second fortnight of April 2012) and sell at $109.03 per barrel is not sustainable and therefore cannot continue.

“Continuation of such pricing will only impede the ability of the Company to import crude oil and may affect product supply-demand balance; or else the Company increase the price of petrol by Rs.8.04 per litre (excluding State levies) with immediate effect.

“The Company is awaiting for Government’s response to its requests and should no relief come forward, it will have no option but to effect the aforesaid increase in petrol prices,” Indian Oil, speaking on behalf of Hindustan Petroleum and Bharat Petroleum as well, said.

This is in addition to the whopping Rs 2 lakh crore that all three oil companies will lose on Diesel, LPG and Kerosene this year, according to Indian Oil. This loss, however, is usually compensated in cash by the government. This amount is also about 3 times what the government expects to compensate this year. It usually compensates to the extent of around Rs 70,000 crore.

However, since petrol is not a ‘regulated’ commodity, the government is not obliged to compensate for losses arising from its sale. As such, the companies are forced to increase prices.

Indian Oil requested the government to either cut taxes or compensate them in cash, or face a petrol price increase.

The move is seen as a sign of desperation by oil companies, who have always refrained from making public their disagreements with their major shareholder, the government.

The last price revision of Petrol was effected by IndianOil on 1st Dec. 2012 when the Company reduced the price by Rs. 0.65 per litre on top of an earlier price reduction of Rs.1.85 per litre effected on 16th Nov. 2011.

“These two price reductions were effected as a result of calming down of the international MS prices which fell from USD 120.83 per barrel to USD 115.03 per barrel and further to USD 109.03 per barrel in the relevant pricing periods.

“The international MS prices have since gone up progressively and stand at USD 132.45 per barrel in the current pricing period. This is much higher than the price of USD 109.03 per barrel at which IndianOil and other OMCs are selling MS (excluding State levies),” Indian Oil said.

The Company’s inability to effect the price increases during the period 16th Dec. 2011 to 31st Mar. 2012 has resulted into total under-recoveries of Rs.1036 crore (for all oil companies about Rs. 2287 crore).

“The under-recoveries suffered by IndianOil during the year 2011-12 due to its inability to pass the increase to consumers, has resulted in total under-recoveries of Rs.2236 crore (Rs.4859 crore for all OMCs). In April 2012 too, IndianOil has suffered under-recoveries of Rs.331 crore (Rs.745 crore for all OMCs) in the first 15 days of April 2012,” it said.

The Company, along with other Oil Marketing Companies has, therefore, requested the Government to:-

1. Declare MS a regulated product temporarily and provide hundred percent cash compensation to the OMCs, or

2. Reduce the Excise Duty on MS from Rs.14.78 per litre by an amount equivalent to the under-recoveries on MS and simultaneously advise the States to reduce the rates of Sales Tax, which vary from 15% to 33% (that works out and varies from Rs.10.30 per litre to Rs.18.74 per litre).

In the earlier periods also, IndianOil, along with other OMCs, has approached the Government several times on the issue of petrol prices with the suggestion that petrol may be brought under the ambit of ‘controlled products’ temporarily or taxes on MS may be lowered to the extent of loss being suffered by oil companies.

Indian Oil also added that the total under-recoveries suffered by IndianOil during the year 2011-12 on the three sensitive and regulated products, viz. Diesel, LPG and SKO against which Government has to provide hundred percent cash compensation, are Rs.75,620 crore (all OMCs about Rs.1,38,800 crore). The prices of sensitive products were revised only once during the year, i.e. on 25.06.2011. Since the last revision, the international prices of these products have shown a sharp increase. The under-recovery on HSD has gone up from Rs.6.13/litre to Rs.14.29/litre, for SKO (PDS) from Rs.24.16/litre to Rs.31.03/litre and for LPG (Domestic) from Rs.331.13/cylinder to Rs.570.50/cylinder as on 16th April 2012. This work out to an under-recovery of Rs.305 crore per day for IndianOil (for all OMCs Rs. 573 crore per day). At the current rates, the under-recoveries of the Company during the year 2012-13 is estimated to be over Rs.1,08,000 crore (for all OMCs over Rs.2,04,000 crore).

India imports about 80% of the oil it needs and depends disproportionately on oil and coal to meet its energy needs.

Petrol prices have already almost doubled at Indian pumps in the last three years and further increases are likely to create political trouble for the government.

Indian Oil said it should have increased the petrol price by Rs.1.89 on 01.01.12; Rs.4.08 on 16.01.12; Rs.3.13 on 01.02.12, Rs.3.47 on 16.02.12, Rs.5.09 on 01.03.12; Rs.6.43 on 16.03.12 and Rs.7.66 on 01.04.12.