Growing consumption, hike in cess and transport charges nullify benefits from fall in global crude prices
The government has bought another 11 days at Rs 30 crore a day for effecting the inevitable increase in the prices of petroleum products. The United Front steering committees decision to postpone the price-hike till at least June 27 will push up the oil pool deficit by around Rs 330 crore.
The deficit would have risen by more than Rs 30 crore a day, but for the softening of Dubai crude prices, hovering around $17 a barrel after peaking at $24 a barrel in January.
The decline in international prices of crude oil below the level anticipated in the oil economy budget (OEB) has had only a sobering effect on the oil pool deficit. Contrary to general perception, the deficit is not shrinking.
This, according to petroleum ministry officials, is because of the normal 10 per cent increase in oil consumption in the country necessitating higher imports, interest on the accumulated Rs 16,000-crore oil pool account deficit, the recent increase in the railway freight for petroleum products, hike in the cess and royalty on crude oil, and the increase in the prices being paid to national oil companies for the crude oil purchased from them.
Officials concede that there has been around 10 per cent decline in the prices of crude oil and other petroleum products in the international market. However, correspondingly there had been a similar increase in consumption of oil products. Therefore, the higher levels of imports more than offset the benefits of lower international prices.
The officials point out that the government is carrying a heavy interest burden on the accumulated oil pool account deficit which has already crossed Rs 16,000 crore. Even if the interest rate is taken at 18.5 per cent, the annual interest burden on the oil pool account comes to Rs 3,000 crore. This implies that the monthly interest burden is of the order of around Rs 250 crore.
Added to this is the 12 per cent hike in the rail freight for all petroleum products, except liquefied petroleum gas (LPG) and kerosene. While in 1996-97, the total railway earnings from petroleum products came to Rs 1,997 crore, these are estimated to go up to Rs 2,328 crore during the current year an increase of Rs 331 crore during the year.
Moreover, the increase in royalty on the indigenously produced crude oil to be paid to states has also added to the deficit. The royalty rates have been raised by Rs 50 from Rs 528 a tonne to Rs 578 a tonne. Considering an indigenous output of around 33 million tonne, the total increase in royalty comes to Rs 165 crore every year.
The governments decision to give a higher price from this year to the national oil companies the Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) for the crude oil produced by them has also come at a time when the petroleum ministry is working out various strategies to tackle the burgeoning oil pool account. The price has been raised from Rs 1,741 a tonne to Rs 1,991 a tonne an increase of Rs 250 a tonne. On a production of 33 million tonne of crude oil, the total outgo on account of this increase in crude prices comes to Rs 825 crore every year.
Officials are heaving a sigh of relief over United Front spokesman Jaipal Reddys assertion on Monday that a final decision on petroleum prices would be taken at the steering committee meeting on June 27. They point out that any further postponement of the decision could result in serious disruption in the supplies of oil products.
Indian Oil Corporation (IOC) has already informed the government that it has exhausted its enhanced $3.5 billion external commercial borrowings (ECB) limit and would not be able to raise further loans in the international market since its debt-equity ratio has touched 2:1.
IOC, the sole canalising agency for petroleum imports, has cautioned that under the present circumstances it would be difficult for it to continue uninterrupted imports of petroleum products. This could lead to disruption in supplies. IOC has written to both the finance and petroleum ministries that it is only a matter of time before domestic refineries, which are not getting their dues from the Oil Coordination Committee (OCC) that manages the oil pool account, start closing down gradually because of their inability to pay for their supplies of crude oil.
