The Rs 2 a litre cut in petrol and Re 1 per litre reduction in diesel prices, announced last week, will increase the loss on auto fuel sales by Rs 300 crore (Rs 3 billion), Crisil Research has said."Industry losses would increase by Rs 300 crore to Rs 19,100 crore (Rs 191 billion)," Crisil Research said in its report 'Impact Analysis: revision of Auto Fuel Prices'.
On account of the last week's price revision, the margins on auto fuel would slip to negative Rs 1.91 per litre as compared with negative Rs 1.87 per litre, without considering the latest price revision.
"This would, therefore, result in the under-recovery on auto fuels increasing by another Rs 300 crore for the rest of 2006-07 fiscal," it said. In 2005-06, the industry clocked an average margin of negative Rs 1.48 per litre.
Although crude oil prices have jumped by nearly 11 per cent year-on-year, retail product prices have not been aligned to reflect this increase in raw material costs.
"Thus, besides the pressure on gross refining margins, this is the key reason for the industry to report higher losses of Rs 19,100 crore in 2006-07 vis-�-vis Rs 8,900 crore (Rs 89 billion) in 2005-06," the report said.
Crisil Research estimated that the incremental burden on the government on account of the recent price cut will be around Rs 300 crore.
"This, along with the financial assistance that was required prior to the price revision, adds up to Rs 600 crore (Rs 6 billion). Of this, Crisil Research expects the government to issue oil bonds of Rs 400 crore (Rs 4 billion), with the balance to be borne by the upstream players," the report said.
Last week's price cut was the second such reduction in less than three months. Prior to November 2006, the retail prices of petrol and diesel were hiked by Rs 4 per litre and Rs 2 per litre, respectively in June 2006 to partially negate the impact of rising crude oil prices, which eventually touched a high of $74 a barrel in July 2006.
Thus, the government has completely reversed the price hike affected in June 2006 with the two subsequent price revisions, the report said.
For the full year 2006-07, the total burden on the government, in spite of the price cut is likely to be around Rs 19,500 crore (Rs 195 billion), which is nearly 30 per cent lower than its earlier estimate of Rs 28,000 crore (Rs 280 billion) worth of oil bonds to be issued in 2006-07, it said.
Petrol price change since UPA formed govt
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