The Hindu Business Line : Crude zips past $135

New Delhi, May 22 As international crude prices breached the $135-a-barrel mark during morning trade on Thursday and subsequently eased, the Government got into an active mode to protect the financials of the public sector oil marketing companies (OMCs) for the current fiscal.

On the table, are three possibilities—increasing retail fuel prices; re-adjusting excise and customs duties or issuing a fresh round of oil bonds.

There was a lot of buzz in the corridors of the Petroleum Ministry on Thursday. With the last phase of polling for the Karnataka Assembly elections being completed, there was a feeling that the Government could consider the politically difficult question of raising the retail prices of auto fuels. The chief executives of two public sector oil companies —Hindustan Petroleum Corporation and Bharat Petroleum Corporation—met with Ministry officials to assess the current scenario.

Reeling under high crude pressure due to selling petroleum products below the market price the three OMCs – Indian Oil Corporation, HPCL and BPCL – are estimated to lose Rs 2,00,000 crore during the current fiscal on sale of petrol, diesel, domestic LPG and kerosene below cost price. The Indian crude oil basket also touched an all-time high of $125.28 a barrel on Wednesday.

The Petroleum Minister, Mr Murli Deora, told newspersons that “we are discussing all possible measures to help and protect our public sector oil companies. Some remedial measures need to be taken urgently but I would like to assure the public that there is no need to panic. We will protect their interests as well.”

The Petroleum Minister has called a meeting of heads of the oil PSUs on Friday. “We are concerned at the financial health of the PSUs,” he said. Indications are that the Petroleum Minister is likely to meet the Prime Minister, Dr Manmohan Singh, on Friday and apprise him of the situation. A Cabinet meeting is also a possibility to discuss various measures, including fuel price hike, according to indications available here.

While the average price of crude oil imported by India has doubled since June 2006, the retail selling prices of petroleum products have been practically static. The OMCs together were losing over Rs 550 crore a day on sale of the products. Revenue loss on sale of petrol is Rs 16.34 a litre and on diesel, Rs 23.49. The under recovery on sale of cooking gas (LPG) is at Rs 306 a cylinder and kerosene Rs 28.72 a litre.

With soaring international crude prices, the three OMCs are also facing a huge liquidity crunch and are borrowing Rs 3,500 crore a month to meet day-to-day expenses. With borrowings touching Rs 65,000 crore, the companies are now talking to banks to raise the borrowing limits.

Mr S Sundareshan, Additional Secretary in the Petroleum Ministry, told presspersons here that “for the next few months, we can manage import of crude and products LPG and kerosene. All of us are working together to deal with the situation.”

On the reports of rationing of fuel and stoppage of LPG connections by the OMCs, he said “there is no restriction on supply of petrol, diesel, LPG or kerosene and nor is there a freeze on issue of new domestic cooking gas connections.”

Currently, the Government has a multi-pronged strategy to contain the adverse impact of the high international oil prices which includes issuance of oil bonds, subsidies by the upstream oil companies and the remaining impact being absorbed by the refiners-cum-retailing companies. Minimum burden is passed on to the consumer.

The Government earns considerable revenue through customs and excise duties and there have been suggestions, especially from the Left parties, that these duties be lowered to protect the consumer.

The customs duty on both petrol and diesel is 7.5 per cent. The tax component in the retail selling price of petrol is around 53 per cent and in diesel, it is 34 per cent. In the 2008-09 Budget, the ad valorem component of excise duty on unbranded petrol and diesel was abolished and converted to a specific duty with effect from March 1, 2008. With this move, the Government has protected the OMCs from higher dose of taxes.

The contribution of petroleum sector in respect of customs duty for 2006-07 was Rs 10,043 crore and excise duty (including cess on indigenous crude oil) fetched the exchequer Rs 58,821 crore.

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