Govt to give Rs 14,000 cr more to make up for OMCs' losses

The Union finance ministry has decided to compensate in cash an extra Rs 14,000 crore of the Rs 19,620 crore of still-uncovered revenue loss incurred by the public sector oil marketing companies — IndianOil, Bharat Petroleum and Hindustan Petroleum — for 2009-10. However, these companies would probably have to absorb the remaining loss of Rs 5,620 crore.

Finance minister Pranab Mukherjee had budgeted for only a Rs 3,108-crore subsidy (for OMC losses incurred in 2009-10, to be paid by the government in 2010-11) in the appropriations approved by Parliament earlier this week for the coming year. A bill for supplementary estimates would have to go to the legislature later this year.

Last year, the government paid Rs 14,954 crore as subsidy to the OMCs.

“The orders have come. We are happy with it,” said a senior petroleum ministry official. The OMCs had delayed announcement of their annual and fourth quarter results due to the delay in deciding the compensation. For the nine-month period ended December 31, 2009, Indian Oil reported a net profit of Rs 4,664 crore. The net profits of Bharat Petroleum and Hindustan Petroleum were much lower, at Rs 834 and Rs 543 crore, respectively.

While the OMCs purchase crude oil at international prices, the sale price of products like petrol, diesel, kerosene and LPG are not maintained in line with international prices. The OMCs’ underrecovery on the sale of these products is estimated to have been Rs 46,051 crore during 2009-10. Under the burden-sharing mechanism for 2009-10, the public sector upstream oil companies are to fully compensate the loss on petrol and diesel, estimated at Rs 14,430 crore. The loss of Rs 31,620 crore on kerosene and LPG is supposed to be made good by the government. Of this, Rs 12,000 has already been compensated to the OMCs in cash.

Currently, the OMCs lose Rs 6.63 on every litre of petrol they sell, while the loss on every litre of diesel and kerosene is Rs 6.25 and Rs 19.74, respectively. They are also losing Rs 254 on every cylinder of domestic LPG.

At these rates and considering an average crude oil price of $80 a barrel, the OMCs are likely to incur losses worth Rs 98,000 crore in the current financial year. However, no mechanism has been announced for the current year, though the government has formed a ministerial panel to look into the issue. The report of the Kirit Parikh group, which had suggested market-linked prices for petrol and diesel and a partial increase in kerosene and LPG prices, is likely to be the basis for discussion by the group.

Meanwhile, the oil companies are faced with rising crude oil prices. The Indian basket of crude oil has averaged $84.24 a barrel so far in the current year, over 20 per cent higher than the average of $69.76 for the entire previous year.