Fuel price cut unlikely anytime soon as OMCs yet to fully recoup last year’s losses

Officials in the Petroleum Ministry and the OMCs declined to give details of the accumulated losses yet to be recovered. In January, Petroleum Minister Hardeep Singh Puri had said that he expected OMCs to reduce fuel prices as soon as they recoup past losses. Even at the time, while there was no under recovery on petrol, OMCs were selling diesel around Rs 13 lower than what the price should have been as per their pricing mechanism.

The three companies had posted a combined net loss of over Rs 21,000 crore in April-September due to massive under recoveries and despite having received Rs 22,000 crore from the government as a one-time grant to compensate them for losses on cooking gas sales. In January, the companies urged the government to give them another Rs 50,000 crore to compensate for losses on petrol and diesel sales. However, that request was not met. Although the government did make a provision of infusing a total of Rs 30,000 crore as equity into the three companies in the Union Budget for 2023-24, that is likely to be contingent upon their capital expenditure plans in certain segments.

On being asked about the likely timeline for resumption of regular revisions in petrol and diesel prices, a top official with one of the OMCs said it would be difficult to predict as oil prices and fuel margins in the global market are dynamic and contingent upon various factors currently, including shifting oil and fuels trade flows, the geopolitical situation given the war in Ukraine, and coordinated production cuts action by major oil producing countries in a bid to support crude oil prices.

“How quickly we are able to recover our accumulated losses depends on various factors. So, it is difficult to say when that will happen. We are hoping for oil prices and fuel cracks to not increase too much and volatility to be manageable, but one cannot be certain,” said the OMC official.

As fuel prices are deregulated in India, the government claims OMCs decided to hold price revisions on their own as good corporate citizens, and were not asked to do so by the government. At one point in June 2022, losses on fuel sales had touched record levels close to Rs 28 per litre on diesel and around Rs 17.5 per litre on petrol.

Had the three public sector companies, which have a cumulative market share of 90 per cent in India’s fuel retail market, continued with daily price revisions in line with international rates, high fuel prices would have resulted in higher inflation at a time when the country was already grappling with high prices. India, while a net exporter of refined fuels, depends on imports to meet over 85 per cent of its requirement of crude oil, making the Indian economy extremely sensitive to volatility in global oil markets.