Diesel under-recovery down to Rs 3.73 a litre

This comes almost a week after oil marketing companies increased diesel prices by Rs 1.02 per litre on May 11

Under-recovery on diesel has come down to Rs 3.73 a litre, giving further relief to oil marketing companies (OMCs). With this, domestic prices are likely to be on a par with international prices by the end of this year or by January.

The decline in under-recovery comes almost a week after OMCs increased diesel prices by Rs 1.02 a litre on May 11, as the fourth dose of decontrol measure started in mid-January. The ministry of petroleum and natural gas said today under-recovery on diesel applicable for the second fortnight of May declined to Rs 3.73 a litre, against Rs 3.80 a litre during the first fortnight.

In the case of kerosene and liquefied petroleum gas (LPG), under-recoveries for May were Rs 27.93 a litre and Rs 378.38 a cylinder, respectively. “According to the Cabinet decision, we are following a monthly cycle of price hike on diesel and it would continue,” said K V Rao, director-finance, Hindustan Petroleum Corp Ltd (HPCL).

The government had implemented a phase-wise decontrol of 50 paise per month on diesel on January 17, to eliminate the under-recovery on the product, which had touched Rs 10.72 a litre in February.

OMCs incur a daily under-recovery of about Rs 252 crore on the sale of diesel, kerosene and LPG, which was Rs 256 crore a day for the previous fortnight. The companies have reported Rs 1.61 lakh core as gross under-recoveries in 2012-13, against Rs 1.38 lakh crore in 2011-12, showing a 16.2 per cent increase.

Under-recovery on diesel for the entire financial year stood at Rs 92,061 crore, kerosene at Rs 29,410 crore and LPG at Rs 39,558 crore. This was largely due to the phased decontrol of diesel prices and capping of LPG cylinders, firming up of the rupee and due to the dramatic drop in international crude oil prices. The commodity had dropped to around $100 a barrel from $118 in December.

Moody’s on diesel price hike
Last week’s rise in diesel prices will help state-owned retailers cut the losses they make on selling the fuel at government-controlled rates, Moody's Investors Service said today. “The increase came against the backdrop of declining global diesel prices over the past several months, which, when combined with the price hike, has reduced the loss, or under-recovery level, at which diesel is sold,” it said.

Lower under-recovery is credit-positive for the three state retailers — Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) — and for upstream firm Oil and Natural Gas Corp (ONGC), Moody's said. “With the price hike, diesel prices have risen a cumulative Rs 2.25 per litre since January, which translates into an Rs 18,000 crore decline in under-recoveries,” it said.

In addition, international diesel prices have fallen by about Rs 3.50 per litre, or nine per cent since January. “As a result, the under-recovery on diesel has now dropped to Rs 3 per lotter versus Rs 9 in January,” it said.