Duty cuts, global prices make OMCs smile at petrol

From a loss of Rs 10.50 on every litre of petrol sold a few weeks ago, oil marketing companies (OMCs) have started making a profit of around Rs 0.60 per litre on the fuel, thanks to the Customs duty cut and the decline in international crude oil prices.

Based on a monthly sale of 1.3 million kilolitres, the oil industry would earn Rs 78 crore every month from petrol at current levels, said an industry official, who did not wish to be quoted.

Last Friday, the government cut the Customs duty on petrol from 7.5 per cent to 5 per cent. Until then, the OMCs were losing Rs 1.98 on every litre of petrol. Announcing the duty rejig, Petroleum Minister S Jaipal Reddy said, “There will be no need for us to enhance the petrol price and the difference between the existing and the desired price will be wiped out with this.”

While the duty cut helped companies wipe out losses on petrol, a decline in international prices in the last fortnight gave them some profit. For instance, the Singapore price of petrol touched a quarterly low of $109.99 per barrel on June 27. Indian refiners price petrol on import parity prices.

While petrol was formally decontrolled more than a year ago, this remained on paper and OMCs -- Indian Oil, Hindustan Petroleum and Bharat Petroleum -- were not allowed to freely pass on the increase in crude oil prices to consumers. Consequently, even with eight price increases since June 25 last year, the OMCs continued to suffer losses on petrol sales for most of the period. Even when they effected the steepest increase in two and a half years of Rs 5 per litre on May 15, they were losing Rs 5.50 per litre.

Since January, they were forced to put any price increase on hold due to assembly elections in four states. In May, their loss on petrol touched Rs 10.50 per litre. Consequently, while being a decontrolled product, the sale of petrol caused IOC, the biggest oil marketer, a loss of Rs 1,200 crore in the first quarter of the financial year.