S K Joshi, director of Finance at Bharat Petroleum Corp says that the petrol prices have softened by $4/bbl and diesel by $1/bbl. He says that there is no freedom on LPG and kerosene prices.
He adds that the Indian crude basket is still below $70/bbl and they are awaiting a written communication on the price revision proposal.
Excerpts from CNBC-TV18's exclusive interview SK Joshi Director of Finance at BPCL:
Have you had any initial conversation with the Oil Ministry and anything more on the contours of these changes?
The recent changes are quite positive to the downstream marketing companies. What the government has told us is that, if the prices, the Indian basket of crude crosses USD 70/bbl, we will be allowed to raise prices of the products. They have provided a good package in terms of the oil bonds as well as the sharing by upstream and refineries, etc that is definitely helping the marketing companies.
Q: There has been some formal communication to this effect to the oil companies. You participated in discussion but they have officially or unofficially told you that this will be the package?
We are awaiting the written communication.
But unofficially it's been confirmed to you that this will be the package?
We will be allowed to raise the prices if the crude Indian basket crosses $70/bbl, then we will be allowed to do that. Currently, prices have not yet crossed those levels. This price change will be on a monthly basis with a monthly interval. The situation has not yet arisen for that.
How will it work? By how much for every dollar change you will be allowed to hike the prices? Have you been given information on hikes in LPG and kerosene as well?
If one looks at the important recommendations of the Dr Rangarajan committee report, more or less the government has implemented, in the sense that the prices beyond $70/bbl, they want to make it floating. They have provided a package to take care of the under recoveries up to the level of $70. The SKO, Superior Kerosene Oil, they will start implementing some pilot to improve the subsidy delivery system that also will go a long way.
What they have not done is, they have not increased the LGP and kerosene prices, whereas they have increased the prices of petrol and diesel. However, with the enhanced bond limits, that deficiency has been taken care of. This is certainly a positive for the marketing companies.
How confident are you that this will actually be implemented and would not just remain a promise on paper?
If one looks at the overall crude prices, where it has reached and the quantum of bonds, which the government has taken the responsibility about Rs 28,000 crore (Rs 280 billion) is quite substantially higher. The capacities to absorb subsidies beyond this are very limited so we positively hope that this freedom will be implemented.
After the announcement of the package, one will find that the product prices have softened a lot. If one sees the last fortnight, petrol has come down $4 per barrel and diesel by $1/bbl. It has a slight impact on the refining margin, but the product prices have softened.
How soon do you expect all this to come through? Is it just a matter of time before you get this written communication or are there a few more hurdles to cross?
Let us wait and see and keep our fingers crossed.
What did the government tell you in the last meeting that you had, did they confirmed but they said we will send you a written confirmation very soon?
That is what I said, if the crude oil prices go beyond, the government will permit the oil companies to control the prices beyond those rates.
For more on markets & business, log on to www.moneycontrol.com