OMCs under-recoveries shrink by a third in April-Dec period for current fiscal

Underrecoveries shrink by a third

Despite the ongoing historic fall in global crude oil prices and the government’s attempts to plug leakages, the losses incurred by oil marketing companies (OMCs) on subsidised sale of domestic cooking gas or liquefied petroleum gas (LPG) have widened 14 per cent to Rs 34,941 crore in the first nine months of the current financial year.

The three OMCs — Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) — had lost Rs 30,604 crore in the first three quarters in FY14. The widening of LPG under-recoveries is attributed to subsidy diversion from household to commercial consumption apart from the increased cap of 12 cylinders per household on subsidised consumption.

The National Democratic Alliance (NDA) government had re-launched an old scheme — direct benefits transfer in LPG (DBTL) — which transfers LPG subsidy directly into the bank accounts of beneficiaries. The scheme was launched in 54 districts on November 15, 2014 and 676 districts across the country on January 1, 2015. DBTL is expected to reduce LPG subsidy by plugging leakages, but its impact would be visible only in the fourth quarter.

The underrecoveries on subsidised sales of the other two petroleum products — kerosene and diesel — have declined. Overall, under-recoveries on the three products during the April-December 2014 period were down 33 per cent to Rs 67,091 crore from Rs 1,00,632 crore in the year-ago period, according to the latest petroleum ministry data.

OMCs’ losses on diesel sales came down 77 per cent owing to the slump in global crude prices, and the price deregulation of the automobile fuel that came into effect on October 18, 2014. OMCs’ losses on diesel sales dropped to Rs 10,935 crore during April-December 2014 from Rs 47,655 crore in the corresponding year-ago period.

Under-recoveries on kerosene slumped 5.1 per cent to Rs 21,216 crore in the April-December 2014 period. The drop came on the back of stagnant domestic prices and declining crude rates, which plummeted to a six-year low of less than $44 a barrel on a supply glut, made worse by the slump in demand in European and Asian economies.

The Indian basket of crude oil prices has come down 52 per cent from $95 per barrel in October 2014 to $45 per barrel at present. The government had budgeted for a petroleum subsidy of Rs 65,000 crore in the current financial year. The petroleum ministry expects overall under-recoveries to be Rs 77,000 crore for the full year. Assuming a 50 per cent burden sharing by the government, its petroleum subsidy could come down to Rs 38,000 crore in 2014-15 against Rs 85,000 crore in the previous financial year.