OMCs' under-recoveries dipped 16% in first half current fiscal

Cooking gas spoils the party with 32% jump in losses

Underrecoveries of oil marketing companies (OMCs) on subsidised sale of diesel, liquefied petroleum gas (LPG) and kerosene declined 16 per cent in the first half of the current financial year. The total underrecoveries would have been lower, had it not been for the 32 per cent jump in losses on LPG sales.

The three OMCs — Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation — registered losses of Rs 51,110 crore between April and September against Rs 60,656 crore in the year-ago period. While LPG losses increased to Rs 24,597 crore from Rs 18,585 crore, diesel underrecoveries dipped about 60 per cent to Rs 11,656 crore from Rs 28,014 crore. Losses on kerosene sales remained flat at Rs 14,857 crore.

The worrisome increase in LPG losses was because of two factors — an 11 per cent rise in consumption (80 per cent of which is subsidised) coupled with near-stagnant retail prices. At the current rate of reduction, OMCs’ gross underrecoveries are seen coming down from Rs 1,39,869 crore in FY14 to Rs 1.17 lakh-crore in FY15 — much higher than the government’s estimate of Rs 75,000 crore.

The three sensitive products account for 60 per cent of the total consumption of petroleum products. Consumption of these grew three per cent to 46.4 million tonnes (mt) in the first half of the current financial year from 45.1 mt in the corresponding period in FY14. LPG consumption grew 11 per cent to 8.56 mt between April and September this year and 16 per cent in September alone.

The prices of subsidised LPG have been revised only twice in two years, that too on account of an increase in dealer commission. The twin revisions have led to a mere 3.7 per cent rise in the price from Rs 399 a cylinder in July 2012 to Rs 414 a cylinder at present. This has led to ballooning of underrecoveries, despite the overall decline in global crude oil prices.

Subsidised LPG accounted for 24 per cent, or Rs 39,558 crore, of total underrecoveries of Rs 1.61 lakh-crore of OMCs on the sale of three sensitive products in FY13. The share rose to 33 per cent in FY14 and further to 47 per cent of the total underrecoveries in the first half of the current financial year. Unlike LPG, diesel’s share in total losses has witnessed a sharp decline from 57 per cent in 2012-13 to 44 per cent in FY14 thanks to a monthly price hike of 50 paise a litre since January 2010. The share dropped to 23 per cent in the first half of the current financial year.

With global crude prices having declined from a peak of $116 per barrel in June to less than $87 per barrel now, analysts estimate gross under-recoveries of OMCs to land between Rs 70,000 crore and Rs 80,000 crore in the current financial year. This would translate into a more than 26% reduction in the government's petroleum subsidy burden that stood at Rs 65,000 crore last fiscal.