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Poll factor: Oil companies hold prices

Raghuvir Srinivasan

Chennai , March 17

FOR all those wondering what's there in the elections for you, here's something to think about. Global crude oil prices have been rising in the last three months yet you are paying the same for filling up your petrol tank as you did in January 2004. And that's thanks due to general elections that are round the corner.

Oil companies are supposed to adjust retail prices of petrol and diesel on a fortnightly basis in accordance with global price movements. Yet, the last time that they did so was on January 1, 2004. Five fortnights of rising oil prices have passed by since then but the oil companies have not dared to pass on the price increase to the consumers.

Had they done so, the retail price of petrol would have been higher by Rs 5-Rs 6 per litre now compared to January 1 while that of diesel would have been higher by Rs 3-Rs 4 per litre according to a top official of a nationalised oil company. Retail prices ought to have been adjusted upwards in each of the last five fortnights.

Crude oil prices were averaging at about $27-$28 (Rs 1,215-Rs 1,260) a barrel in early January; today they are hovering in the region of $33 per barrel. So who's subsidising the price for us consumers?

The oil refining and marketing companies, that is, Indian Oil, Bharat Petroleum, Hindustan Petroleum and IBP. According to an official of one of them, these companies are together set to suffer a dent of about Rs 3,500 crore on their profits in proportion to their share of the market; the larger the share, the bigger the dent.

The oil industry was deregulated a couple of years ago and the marketing companies were ostensibly freed from government control in fixing retail prices for petrol and diesel. However, in practice, it has never really worked that way. As the official quoted above said: "The cat is clearly out of the bag now. If the oil companies were free to align prices with the market, they would have raised them now. That they have not done so clearly shows that they are not free to do so."

Given that elections are still a couple of months away and it may take a fortnight after that for the new government to settle down, the nod to align retail prices with the market is not going to come for a long time. The oil companies are worried about the impact on their profitability if the current regime of high crude oil prices is sustained. With these companies listed on the stock market with significant public shareholding, there are issues of shareholder interest also involved. "The government is no longer the sole owner, there are public shareholders whose interests are being compromised," says the official, who prefers to remain unnamed for obvious reasons.

Consumers may be happy for the moment but when the price increase does happen, it is bound to be rather steep. So tank up when the going is good!

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