Tough for OMCs to make fuel price cut, says Jaipal Reddy

Rupee depreciation has made it difficult for the oil marketing companies to reduce the price of petroleum products, petroleum minister S Jaipal Reddy said on Wednesday.

The underrecovery or the revenue loss incurred by the companies in selling diesel, LPG and kerosene at controlled price was likely to be more than Rs 1,21,571 crore at an average crude oil price of $110 a barrel, he told the Economic Editors’ Conference here.

The government was “committed” to making available essential fuels, particularly cooking fuels to the common man at affordable prices. However, as a result, the oil marketing companies (OMCs) have been “incurring huge under-recoveries” on sale of diesel, domestic LPG and PDS kerosene.

“Price of petrol and crude oil has marginally declined in the recent past in international markets. However, the rupee is simultaneously depreciating against the US dollar since this September,” he said. “Hence the decline in prices of petrol and crude oil in international market is offset with the depreciation of rupee. Even after the implementation of market determined pricing, the public sector OMCs have been making price revisions of Petrol in a guarded manner, absorbing a part of the under-recovery themselves,” he said.

Petroleum secretary G C Chaturvedi said the gross underrecovery was likely to be Rs 21,000 crore in the second quarter ended September 30. Of this, the ministry was seeking a reimbursement of Rs 14,250 crore from the government. “Upstream companies for the time being will continue to share 33 per cent of the subsidy burden,” he said. In the April-June quarter, the gross underrecoveries stood at Rs 43,000 crore.

The ministry of finance has indicated that Rs 15,000 crore would be given for the first quarter. The government has under estimated its petroleum subsidy bill in the current financial year at Rs 23,640 crore. It has already exhausted this sum in May by paying subsidy for the last financial year. With revenue under pressure and GDP growth expected to be lower than nine per cent estimated at the time of budget, any fresh provisioning for oil subsidy will hit the fiscal deficit target that had been set at 4.6 per cent of the GDP.

The OMCs would be losing about Rs 67,000 crore in sale of diesel, he said. Stating that 15 per cent of the diesel consumption was for personal vehicles, Reddy said his ministry felt that dual pricing was not a practical solution. They have suggested a higher duty on diesel cars.

LPG subsidy would roughly amount to another Rs 25,000 crore during the year. Reddy said it was a difficult political call to restrict the number of subsidised LPG cylinder.

On the controversial issue of the Comptroller and Auditor General’s report on production sharing contracts with private companies, the minister said some of the suggestions would be taken into the consideration in the next round of new exploration and licencing policy.