Govt to absorb cost, as oil at 2-year high

With global crude oil prices touching a two-year high of over $93 a barrel, Finance Secretary Ashok Chawla said the government would continue to compensate public sector oil marketing companies (OMCs) for under-recoveries on the sale of fuel at government-regulated prices. The additional subsidy burden on the government would not impact its fiscal deficit target for the current year.

Chawla said the government is willing to bear one-third of the under-recoveries in the current fiscal, as it has been doing in the recent past. “If global crude prices rise (further), oil subsidies will increase. But the fiscal deficit will remain at the projected 5.5 per cent of GDP," he told reporters on the sidelines of a conference.

The government draws comfort from the Rs 1,06,317 crore it has raised this year from the 3G and BWA spectrum auction, much above the budgeted target of Rs 35,000 crore. The government had provisioned for Rs 3,108 crore as petroleum subsidy in the Budget presented in February, but later added another Rs 14,000 crore in the first supplementary.

Chawla ruled out any changes to the duty structure for the petroleum sector and said changes, if any, would be looked at only at the time of the next Budget.

The Indian basket of crude oil averaged around $89.16 a barrel in December, up 5.81 per cent from November’s average of $84.26. The current fiscal average price is $78.95 a barrel, up over 13 per cent from the FY10 average of $69.76.

An empowered group of ministers headed by Finance Minister Pranab Mukherjee was earlier scheduled to meet on Wednesday to take a call on hiking diesel rates. The meeting was postponed and is now expected to be held on December 30.

OMCs Indian Oil, Hindustan Petroleum and Bharat Petroleum, which purchase crude oil at market rates, are required to sell diesel, kerosene and LPG at government-capped prices, resulting in huge losses. These are usually compensated for through a mix of cash subsidy from the government and discounts from upstream companies like Oil India and Natural Gas Corporation and Oil India.

Besides the current loss of over Rs 6 a litre on diesel, OMCs lose Rs 17.72 a litre on kerosene and Rs 272.19 a 14.2-kg LPG cylinder. Last week’s hike of Rs 2.95-2.96 a litre on petrol is lower than the desired increase of Rs 4.20, leaving OMCs with a loss of Rs 1.25 on each litre of petrol.

OMCs are projected to end the fiscal with a Rs 68,361 crore revenue loss on account of selling diesel, domestic LPG and kerosene at below cost. OMCs lost Rs 31,367 crore in revenues in the April-September period. This also includes Rs 2,227 crore on selling petrol below cost up to June 25, when its pricing was decontrolled.

Of this revenue loss, upstream oil firms pitched in with discounts worth Rs 10,456 crore, while the government provided Rs 3,108 crore in the Budgetary and another Rs 14,000 crore in the supplementary.