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Rediff.com  » Business » Oil companies may soon start losing money on sale of petrol too

Oil companies may soon start losing money on sale of petrol too

August 29, 2013 15:04 IST

An oil rigWith the rupee falling to new lows against the dollar and the Syrian crisis pushing global crude oil prices higher, the concerns that Indian oil marketing companies might again start losing money on petrol sales are back.

According to estimates, if the companies are not allowed to raise petrol rates at least Rs 5 a litre by the first fortnight of September, they might begin to suffer underrecoveries on this decontrolled auto fuel, too -- for the first time this financial year.

Brent crude, which had closed at $116.27 a barrel on Tuesday, had risen to $118.04 a barrel at 6 pm on Wednesday.

The rupee closed near the 69-a-dollar mark.

In the second fortnight of this month, Brent has zoomed from $111.28 to the $118 level, while the Indian currency has slid around 12 per cent since the previous fortnightly price adjustment, on August 16.

Debashish Mishra, senior director, Deloitte India, said: “There’s a serious underrecovery threat on petrol, unless the government goes for a significant hike in prices.

The overall underrecovery on sale of sensitive petroleum products might cross Rs 2 lakh crore (Rs 2 trillion) this year.”

According to industry experts, for the second fortnight of this month, the average underrecovery on petrol now stands at around Rs 1.9 a litre.

“With the developments over the past few days, unless there is a hike -- even as a Parliament session is on -- the price hike required to offset oil firms’ losses would be Rs 5-6 a litre by September 15.

"This would lead to a situation like last year, when there was an underrecovery of Rs 1,100 crore on petrol,” said Emkay Global Financial Services’ Dhaval Joshi.

A senior petroleum ministry official, however, said the government was unlikely to go for a major increase in the prices of diesel, LPG or petrol before Parliament’s monsoon session was over.

The ministry is learnt to be examining the proposal to raise diesel price by more than the agreed 50 paise a month and even increase the price of subsidised domestic cooking gas.

But Petroleum Minister M Veerappa Moily had on Tuesday said: “At the moment, there is no proposal for a higher dose of increase in the price of diesel or an LPG price hike”.

According to oil companies, there had not been any underrecovery on petrol until the first quarter of the current financial year.

In June 2010, the government had effected a decontrol of petrol prices.

Diesel, on the other hand, is being decontrolled in a phased manner since January this year.

The Brent crude price has been rising over concerns that the US and UK might attack Syria, holding President Bashar al-Assad responsible for a chemical-weapon attack in Damascus.

The rise is alarming for India, as the composition of its basket represents the average of Oman and Dubai for sour grades and Brent for sweet grade in the ratio of 68.2:31.8.

According to a Bloomberg report, the Syrian crisis might lead Brent prices to zoom to $150 a barrel.

Emkay Global’s Joshi, however said: “It’s highly unlikely that Brent prices would go above $125 a barrel.”

For the second fortnight of this month, the under-recoveries on diesel, kerosene and LPG stood at Rs 10.22 a litre, Rs 33.54 a litre and Rs 412 a cylinder, respectively.

State-run Indian Oil, Hindustan Petroleum and Bharat Petroleum were together incurring a revenue loss of Rs 389 crore on a daily basis in selling fuel below market price.

Shine Jacob in New Delhi
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