Though oil marketing companies (OMCs) are upbeat on the decontrol of diesel prices, its impact on under recovery during the current financial year would be a mere Rs 2,700 crore. The Government had come up with a roadmap for partial decontrol of diesel prices last week, by increasing the prices in small doses gradually bringing it at par with the global rates.
Following this, diesel prices were raised by 45 paise per litre, while bulk customers would have to pay the market price now. Out of the total under recovery of Rs 1,60,000 crore that OMCs are currently bearing, the share of bulk customers adds to around Rs 12,907 crore.
“As far as the industry is concerned, the price hike will have a minimal impact on under recovery, with an expected deduction of around Rs 2,700 crore during the current financial year. However, the increase in LPG cap had an impact on these figures,” said B Mukherjee, Director (Finance), Hindustan Petroleum Corporation (HPCL).
According to experts, based on current prices, the decrease in under recoveries for OMCs the next financial year would be around Rs 15,000 crore .
Echoing his words, Indian Oil Corporation (IOC) Chairman R S Butola said, “The move is encouraging, but for the first nine months of the financial year, the government’s subsidy part of Rs 50,000 crore for OMCs is yet to be paid.”
According to analysts, even if oil companies are able to raise diesel prices by Rs 3-4 per litre as against Rs 9.6 litre of current under-recovery, during the course of current calendar year, it would bring down overall subsidy losses meaningfully.
“A Re 1 per litre change in diesel prices for retail consumers impacts under-recoveries by Rs 75 billion (Rs 7,500 crore),” said a report by Kotak Institutional Equities.
Full deregulation of diesel for bulk users will reduce under-recoveries by Rs 155 billion (Rs 15,500 crore), the report added. IOC, HPCL and Bharat Petroleum were bearing a loss of Rs 384 crore per day before the hike, on account of sales of diesel, petrol and LPG. The prices of domestic non-subsidised cylinders were also increased by Rs 46.50 per cylinder, while the cap was increased from six to nine.
“Even during the current financial year, the deduction in under-recovery will be substantial only if the companies implement 50 paise hike in the coming months,” said Bhavesh Chauhan, senior research analyst at Angel Broking.
