Editorial: A way out of the impasse

And yet, the government is frozen in inaction, much like a rabbit that is unexpectedly caught in the glare of headlights. Global crude prices were $67 a barrel 18 months ago, compared to today's $125. How fast the "under-recoveries" (a delicate word for unalloyed losses) are rising can be seen from the fact that these were Rs 17.50 per litre last month, and have risen to Rs 21 already. In a business-as-usual scenario, this means that oil sector under-recoveries will jump from last year's Rs 77,000 crore to the vicinity of Rs 180,000 crore in 2008-09, a large part of which will be funded by the state-owned oil marketing firms.

 

As a result of the losses and the lack of investor confidence in the way these companies are allowed to function under government policy that does not observe the rules of the market, the price-earnings ratios for these firms are a small fraction of what they are for Reliance Industries. This private sector giant was refused the oil subsidy that is given to the state-owned oil marketing firms, it therefore decided to close down its 11,432 petrol-diesel selling outlets, and now prefers to sell in global markets only. Meanwhile, the loss in the market capitalisation of the state-owned firms is in the region of several hundred thousand crore rupees