Raise oil subsidy: Deora to FM

With the government putting off an increase in diesel prices, Petroleum Minister Murli Deora today sought an increase in government subsidy to bail out the three oil marketing companies (OMCs). Deora met finance minister Pranab Mukherjee in Mumbai to seek an immediate release of Rs 10,000 crore as interim subsidy to Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation.

With global crude oil prices hovering around $90 a barrel, OMCs are incurring a daily loss of Rs 275 crore. “I met the finance minister in Mumbai and requested him to help OMCs by increasing the government share in under-recoveries from one-third (33 per cent) to 55 per cent,” Deora told Business Standard over the phone from Mumbai.

The three OMCs are projected to lose Rs 72,812 crore in revenues in 2010-11 if crude oil continues to average $90 a barrel in the fourth quarter. “We are looking to the finance minister for help in these difficult days,” Deora said.

With Oil and Natural Gas Corporation heading for a follow-on issue in March, the government cannot burden it with a higher subsidy share. Upstream oil and gas producing companies, ONGC, Oil India and GAIL Ltd are asked to give discounts to OMCs on the ground that they benefit from an increase in global crude oil prices since their crude is benchmarked to international crude. The discount this year has been equivalent to one-third of the revenue losses, known as under-recoveries, incurred in selling auto and cooking fuels below the market price. The upstream companies bore losses only on diesel and petrol, which limited their share to 31 per cent.

The government has so far committed a Rs 17,108-crore petroleum subsidy for the current year. Though the amount would show in the government’s current year’s account, the three OMCs had showed it as receivables on their books last year. For the current year, they have only a commitment by way of a government letter for one-third of the under-recovery.

Without a government cash subsidy, the three companies are expected to pose a combined loss of Rs 2,250 crore for the quarter ended December 31, 2010 as against a combined profit of Rs 9,524 crore in the second quarter. The three government-owned companies are losing Rs 6.99 a litre on diesel, Rs 19.60 a litre on kerosene and Rs 366.28 per one 14.2-kg LPG cylinder.

While oil companies have been free since June 2010 to set the petrol price, decisions on increasing diesel, LPG and kerosene prices are taken after a go-ahead from an empowered group of ministers. The inflation-wary government twice postponed the EGoM meeting last month. An increase in the diesel price has a direct impact on food prices, especially on fruits and vegetables. With food inflation for the week ended December 25 touching a 23-week high of 18.32 per cent, a hike in fuel rates could cause further discomfort to the government.