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Cut tax or face petrol price hike: Oil cos to govt

"There is a limit to which we can borrow money and produce fuel," Indian Oil Corp chairman said.

Written by Agencies | New Delhi | Published: April 17, 2012 7:37:26 pm

State-run oil companies have served an ultimatum to the government that they will raise petrol prices by Rs 9.6 a litre if excise duty is not cut or they are not provided compensation for Rs 49-crore per day loss on fuel sale.

“We have been very patient,not raising prices since December despite our cost of production spiralling. But there is a limit to which we can borrow money and produce fuel for the country,” Indian Oil Corp Chairman R S Butola said here.

IOC,together with Hindustan Petroleum and Bharat Petroleum,is losing Rs 49 crore per day on petrol sale alone. They are losing another Rs 573 crore every day on selling diesel,domestic LPG and kerosene below cost.

Butola said oil PSUs in the first 15 days of April lost Rs 745 crore in revenue on petrol,whose pricing was freed from the government control in June 2010. But rarely have the product prices moved in tandem with cost as oil companies bowed to government diktats.

“We have suggested that the government should temporarily end deregulation and give subsidy to make up for the difference between cost of production and sale price.

Alternatively,the government can cut the Rs 14.78 excise duty it collects when a consumer buys one litre of petrol,” he said.

The states also levy VAT or sales tax ranging from 15 per cent to 33 per cent (Rs 10.30 a litre to Rs 18.74 per litre),which too can be cut to avoid a price hike.

If the suggestions are not accepted “we would have no option but to increase the price of petrol by Rs 8.04 per litre (excluding state levies) with immediate effect”,he said. After including 20 per cent VAT,the increase in Delhi will come to Rs 9.60 a litre.

Oil companies,Butola said,import crude oil at a price of USD 121.29 per barrel (being the average rate for 1st fortnight of April),and sell at USD 109.30 a barrel.

“This is not sustainable and cannot continue. Continuation of such pricing will only impede the ability of companies to import crude oil and may affect product supply-demand balance,” he said.

“The company is awaiting the government’s response to its requests and should no relief come forward,it will have no option but to effect the aforesaid increase in petrol prices,” an IOC press statement issued later said.

Butola said IOC and other oil marketing companies had approached the government several times suggesting that petrol may be brought under the ambit of ‘controlled products’ temporarily,or statutory levies may be lowered to the extent of loss being suffered.

Petrol prices were last revised on December 1,when PSU oil firms reduced rates by Rs 0.65 a litre on top of an earlier price reduction of Rs 1.85 per litre effected from November 16,2011.

The international gasoline prices,against which the domestic rates are benchmarked,have since gone up to USD 132.45 per barrel.

“This is much higher than the price of USD 109.03 per barrel at which IOC and other oil marketing companies are selling petrol (excluding State levies),” the statement said.

Oil PSUs “inability to effect the price increases during the period December 16,2011 to March 31,2012 has resulted into total under-recoveries (revenue loss) of Rs 2,287 crore.”

For the full 2011-12 fiscal,IOC lost Rs 2,236 crore on selling petrol below cost during different times of the year and the industry (IOC plus BPCL and HPCL) together lost Rs 4,859 crore. These were over and above Rs 138,800 crore the industry lost on selling diesel,domestic LPG and kerosene.

Butola said the losses on petrol are on top of the losses on diesel,domestic LPG and kerosene,whose prices are regulated by the government.

“The prices of (these) sensitive products were revised only once during the year (2011-12),i.e. on June 25,2011,” the statement said.

“Since the last revision,the international prices of these products have shown a sharp increase,” it added.

Under-recovery or losses on diesel have gone up from Rs 6.13 per litre to Rs 14.29 a litre while those on kerosene have risen from Rs 24.16 per litre to Rs 31.03 a litre.

LPG (Domestic) has seen looses widening from Rs 331.13 per cent 14.2-g cylinder to Rs 570.50 a bottle.

“This works out to an under-recovery of Rs 305 crore per day for IOC and Rs 573 crore for all oil marketing companies. At the current rates,the under-recoveries of the IOC during the year 2012-13 is estimated to be over Rs 1,08,000 crore (for all OMCs over Rs 2,04,000 crore),” the statement said.

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