The government appears to have developed cold feet on increasing diesel and cooking gas (LPG) prices,with Oil Minister M Veerappa Moily today saying there was no proposal to hike rates just yet.
Moily insisted that no proposal has been moved to the Cabinet for raising diesel rates beyond the 40-50 paise a litre monthly increase,which has been implemented since January this year.
“We have to take decision objectively and in the interest of the consumer… As on today,there is no proposal to increase price of diesel except for what the Cabinet had authorised in January,” he told reporters here.
With rupee depreciating sharply this fiscal,the difference between the cost of producing fuel and the retail selling price has widened. Diesel is currently being sold at a loss of Rs 14.50 per litre.
Besides,state-owned oil firms are also losing Rs 36.83 per litre on kerosene sold through ration shops and Rs 470.38 per 14.2-kg cooking gas (LPG) cylinder.
The ministry had been mulling hiking diesel price by Rs 3-5 per litre,kerosene by Rs 2 and LPG by Rs 50 per cylinder to cut losses by Rs 20,000 crore.
“We are concerned about the under-recoveries (the difference between cost and retail selling price). We are working on other alternatives to reduce the under-recoveries,” he said.
When asked if the price increase was off the table,Moily said: “If you ask me today,there is no proposal. But we live in a dynamic environment.”
The government appears to be wary of the political impact the increase in prices will have just ahead of assembly elections in four crucial states,including Delhi,Rajasthan and Madhya Pradesh.
Moily said about Rs 128,976 crore under-recovery is likely on sale of diesel,LPG and kerosene this fiscal,which will be met by government cash subsidy dole of Rs 66,931 crore and another Rs 62,045 crore coming from the upstream firms like ONGC.
Moily said the rupee,which had averaged at 58.38 to a US dollar in 2012-13,has depreciated now to 60.03.
If rupee was to stay at 58 to a US dollar and global oil rates stabilise around $105 per barrel,the under-recovery this fiscal would be Rs 116,485 crore. However,if the rupee drops to 62 and oil prices rise to $110,the same would rise to Rs 159,385 crore.
In the most likely scenario of rupee averaging 60 to a dollar in 2013-14 and oil rates hovering around $105 per barrel,the under-recovery would be Rs 128,976 crore,he said.
A Re 1 increase in diesel price will cut loss by Rs 4,522 crore in remainder of current fiscal while a Rs 3 per litre increase would trim losses by Rs 13,565 crore. If rates are raised by a one-time Rs 5 per litre,the losses would be cut to Rs 29,390 crore.
The hikes that was being considered was one-time and outside the monthly revision in rates of 50 paisa happening since January.
Similarly,a Rs 50 per cylinder increase in LPG rates would trim cooking gas losses by Rs 2,604 crore. Besides,a possible Rs 2 per litre hike in kerosene price would cut losses by Rs 1,014 crore.
Moily said every Re 1 depreciation of Indian rupee against US dollar increases the under-recovery (loss) of the public sector OMCs on sale of diesel,PDS kerosene and domestic LPG by about Rs 7,900 crore per annum.
During 2012-13,oil firms lost Rs 161,029 crore on selling diesel and cooking fuel at government controlled rates. To make up for this,the government gave Rs 85,000 crore cash subsidy while upstream firms like ONGC gave Rs 60,000 crore. The balance was absorbed by fuel retailers.
During the year 2012-13 even after getting almost 100 per cent compensation,the OMCs could report a combined profit after tax (PAT) of mere Rs 8,552 crore,which was only 0.95 per cent of their combined turnover of Rs 892,653 crore.
The combined borrowing of the three retailers at the end of March 2013 was Rs 138,522 crore and their interest burden rose to Rs 10,254 crore.
“The continuous increase in the borrowings have resulted in deterioration of the debt-equity ratio of OMCs over the years,” Moily had written to Prime Minister Manmohan Singh last month.
Indian Oil Corp’s (IOC) debt-equity ratio,which is the number of times debt over equity,has risen from 0.88 in March 2010 to 1.32 in March 2013 while for Hindustan Petroleum Corp (HPCL) soared from 1.84 to 2.46.
In spite of the decision to authorise retailers to increase the price of diesel in the range of 40 to 50 paise per litre per month and after seven price hikes since January 18 totaling Rs 4.25 per litre,the current under-recovery of Rs 14.50 per litre is higher than the level of prevailing loss of Rs 9.03 a litre in January.