Indian oil cos expect under-recovery to halve in FY14

Relief seen from easing global crude oil prices, phased diesel decontrol and capping of LPG cylinders

Oil marketing companies (OMCs) may have some reason to cheer in 2013-14. The revenue loss on sale of diesel, kerosene and liquefied petroleum gas (LPG) is expected to drop 48 per cent to Rs 84,400 crore in 2013-14, against Rs 1.61 lakh-crore in 2012-13.

The estimates are based on April data and the benefit that is likely to accrue is due to the government’s decisions over the past few month. The phased decontrol of diesel prices and the capping of subsidised domestic LPG cylinders and firming up of the rupee have helped in controlling subsidy. Besides, there has been a dramatic drop in international crude oil prices, which dropped to around $100 a barrel, from around $118 in December. 

According to the latest figures, the under-recovery on diesel has come down to as low as Rs 3.8 a litre, while those on kerosene and LPG dropped to Rs 27.93 a litre and Rs 378.38 a cylinder, respectively. Yesterday’s data of Petroleum Planning and Analysis Cell pegged under-recovery on key petroleum products at Rs 256 crore a day.

“This drop of 48 per cent is basically due to the drop in international prices. It has dropped drastically in the last three months,” said K V Rao, director-finance, Hindustan Petroleum Corporation (HPCL). “The cap of nine cylinders on subsidised LPG and the diesel decontrol also contributed to this. However, it will take at least three months to come out with a more realistic forecast for the financial year.”

Diesel price was last increased by 45 paise a litre on March 22. But OMCs decided to skip the monthly hike in April.

With elections in Karnataka due to begin on May 5 and Parliament in session, the government had informally asked the companies not to increase the price. OMCs said diesel price would be on a par with market rates within 15 months. The government had gone for a phase-wise decontrol of diesel price at 50 paise a month on January 17. The step was taken to eliminate the under-recovery, which had touched Rs 10.72 per litre in February.

An industry analyst said: “The oil marketing companies were expecting diesel prices to move towards market prices by early 2015. Now, with a monthly increase of 50 paise and global price easing, OMCs would be able to touch market level on diesel prices within nine months, or at most by 15 months (mid-2014). As far as the overall under-recoveries of OMCs are concerned, the firming up of the rupee has also been a major factor.”

However, experts said the relief in under-recovery would happen only if the international prices remain almost at the same level. Due to the diesel decontrol, the revenue loss is expected to be down by Rs 15,000 crore, while the capping of subsidised LPG cylinders may cut the subsidy by Rs 7,950 crore on an annualised basis. The under-recovery is usually shared by the government and upstream companies.

The overall under-recovery in 2011-12 was Rs 1.38 lakh-crore, out of which diesel had the majority share (Rs 81,192 crore). Domestic LPG’s was Rs 27,352 crore and kerosene’s was Rs 29,997 crore. As India imports 83 per cent of its crude oil requirement, international prices play a decisive role in domestic pricing.

The three public sector oil marketing companies -  Indian Oil Corporation, Bharat Petroleum Corp Ltd and HPCL - pay trade parity price to refineries when they buy petrol and diesel and import parity price for domestic LPG. Though petrol prices were decontrolled in June 2010, it still has a minor under-recovery attached to it.