Govt oil subsidy, petrol prices to fall; diesel may continue to rise

Brent crude oil prices falling to 8-month low give hope, but weaker rupee still a concern for OMCs

With the Brent crude oil prices falling to an eighth-month low on Thursday, oil marketing companies (OMCs) are expecting some relief on their revenue losses, but a weak rupee continues to worry them.

“Every dollar decrease in crude oil price can on an average bring down the price of products by 40 paise. But, currency depreciation sees an increase of about 78-80 paise in the desired price of petrol and diesel for every rupee fall against the dollar,” P K Goyal, director (finance), Indian Oil Corporation told Business Standard.

Petrol price that has fallen Rs 3.45 a litre since the beginning of March to Rs 67.29 in Delhi is likely to fall further. But, diesel price at Rs 48.63 may continue to rise due to the phased decontrol policy of the government.

The benchmark Indian crude oil basket averaged almost $106 a barrel last month, but was significantly lower at $103 on Thursday. Brent has a 31.8 per cent weight in the Indian basket with Dubai-Oman crude oils constituting 68.2 per cent.

The revenue loss on diesel for government-controlled Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum has already come down significantly to Rs 6.52 a litre from Rs 10.27 in the first fortnight of February 15 due to easing global prices besides three monthly increases in retail price since January this year. In the case of subsidised LPG cylinder, the revenue loss has come down to Rs 435 from Rs 481 a cylinder.

Kerosene sold through public distribution system (PDS), too, has shown over Rs 1 reduction in revenue loss at Rs 30.49.

In January, when the revenue loss on diesel was Rs 9.60, Indian Oil Corporation had said the revenue loss on diesel would decrease by around Rs 15,000 crore for all the three government OMCs in the three months to March 2013. But even after the second dose of decontrol on February 15, the revenue loss on diesel had stood at Rs 10.27 a litre.

In the past seven years, petroleum subsidy has more than doubled. Though the government had budgeted only Rs 40,000 crore in petroleum subsidy in 2012-13, the gross subsidy for the sector is estimated to be Rs 1,55,000 crore, of which Rs 96,880 crore is already on the government’s shoulders. Phased decontrol of diesel price and capping of subsidised LPG cylinders is likely to reduce petroleum subsidy this year.

The government has budgetted a 33 per cent reduction at Rs 65,000 crore for 2013-14, but the over the past few years, its estimates have gone awry.

Under the current policy, gross petroleum subsidy that is the difference between the retail selling price and the import and export trade parity price of products in the ratio of 80 and 20, is borne by the government and its companies.

Even crude oil and natural gas  producing companies like Oil and Natural Gas Corporation, Oil India and GAIL India are asked to bear a portion of the subsidy.