Despite price increases, diesel underrecovery back to Rs 10-mark

Rise in under-recovery pushed by fall in rupee to Rs 61.52 versus dollar, rise in international prices to $108.59 per barrel

The underrecovery on diesel has hit a five-month high of Rs 10.22 a litre for the second fortnight of August, causing a shock to the government’s phase-wise decontrol measures introduced in January this year.

The rise in underrecovery is pushed by the rupee closing at the 61.71 mark to a dollar on Friday and a rise in international prices to $108.59 a barrel. The Centre had opted for a phased decontrol of diesel, with a monthly increase of 50 paise from January 17, till oil marketing companies (OMCs) are able to eliminate the loss on sales.

The under recovery on kerosene and domestic liquified petroleum gas (LPG) — calculated on a monthly basis — stood at Rs 33.54 a litre and Rs 412 a cylinder. Since the introduction of decontrol measures, the diesel figures had touched a peak of Rs 11.26 a litre in March, following which the gap had narrowed down to even Rs 3.8 a litre in May.  There were speculations the government might go for a higher dose of diesel decontrol in order to bring down the under recovery figures.

According to ministry sources, companies like the Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation were repeatedly asking for a higher dose of monthly diesel price hike to recover this huge loss they are suffering.

OMCs, effective from August 16, are incurring a combined daily underrecovery of Rs 389 crore on the sale of diesel, kerosene and domestic LPG, compared to Rs 379 crore during the previous fortnight.

For the first quarter of the financial year, the overall under recovery for OMCs stood at Rs 25,579 crore. The losses on sensitive products during the last financial year was Rs 1,61,029 crore. Every fall in the rupee by of Rs 1 would cost them Rs 9,000 crore annually in the form of under recovery, while every $1 increase in crude oil prices would add another Rs 5,000 crore annually to the subsidy burden.

While international crude prices were $105.59 a barrel on August 1, the rupee value versus the dollar was almost the same at Rs 61.12.