The Hindu Business Line : Under-recoveries by oil cos may exceed Rs 40,000 cr: Aiyar

IF the current trend of huge under-recoveries leading to losses suffered by the oil companies continues, the under-recoveries for the year 2005-06 are likely to exceed Rs 40,000 crore, the Petroleum Minister, Mr Mani Shankar Aiyar, has said.

"The Ministry is now trying to see what kind of contribution we will have to direct the upstream companies to make to offset or, at least, minimise the losses being suffered by the oil marketing companies (OMCs)," he said.

Despite the upward revision in prices of petrol and diesel on midnight of June 20 this year, OMCs are beginning to suffer net or cash losses, seriously incapacitating their abilities to meet capital expenditure targets or maintain dividend equities. This according to the Minister was a disturbing trend. These losses have occurred notwithstanding the huge contribution of Rs 3,257 crore from upstream oil companies such as ONGC and OIL, as well as GAIL to the public sector OMCs, he added.

In a statement made in the Upper House on Tuesday on the increase in prices of petroleum products, the Minister said, that the accumulated under-recoveries are mounting, month after month, owing to sustained increase in the international prices of these products. The upstream contribution in the first quarter of 2004-05 was only Rs 1,156 crore or about one third of the contribution in the first quarter of the current financial year.

The Minister also informed the House that the Government was continuously monitoring the price situation, as India is highly dependent on oil imports, with about 76 per cent of crude processed in Indian refineries being imported. Therefore, the international oil prices impact domestic crude prices, and domestic retail product prices.

Since April last, bench market crude prices have touched unprecedented high levels, with the Indian basket of crude oil touching an all-time high of $57.56 bbl on Monday, the Minister said. Commenting on the pricing mechanism, Mr Aiyar said, it attempts to balance the interests of various stakeholders — consumers, government and oil companies.

In view of the continued price increase and under-recoveries suffered by the oil marketing companies (OMCs), the Government had increased the prices of petrol and diesel by Rs 2.59 litre and Rs 2.00 per litre respectively from midnight of June 20.

Notwithstanding the price revision, the cash losses suffered by IOC, HPCL, BPCL and IBP in July 2005 stood at Rs 1,516 crore.

The estimated under-recoveries for 2004-05 on PDS kerosene and domestic LPG are estimated at Rs 17,720 crore, while on petrol and diesel it is estimated at Rs 2,190 crore. The total under-recoveries are estimated at Rs 19,910 crore up from Rs 9,370 crore in 2003-04. In addition, the estimated under-recoveries of OMCs in respect of petrol and diesel during April-June 2005 is estimated to be Rs 4,900 crore and that on PDS kerosene and domestic LPG at Rs 4,800 crore, the Minister said.

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