The Hindu Business Line : Rising prices in global markets — Oil companies' loss put at Rs 3,000-cr in two months

PSU oil marketing companies claim to have lost close to Rs 3,000 crore on petrol and diesel sales and LPG under-recoveries in April and May, thanks to spiralling international crude oil prices but static domestic retail rates.

Indian Oil Corporation, the largest oil importer, has lost close to Rs 300 crore on petrol and diesel sales in April and May when international crude prices crossed $40 per barrel, a senior company official said.

The loss suffered by Hindustan Petroleum, Bharat Petroleum and IBP Ltd would add up to roughly another Rs 300 crore, say officials.

The new Petroleum Minister, Mr Mani Shankar Aiyar, today reviewed the situation with oil company officials. It was, however, not known if he would allow them to raise fuel prices. Oil PSU officials say the Ministry may help them by reducing customs duty on crude imports and petrol/ diesel.

It may also consider reducing the Rs 6 per litre surcharge levied on petrol for cross-subsidising kerosene and LPG.

"In the January-March quarter, steep crude prices completely eroded our profit margins," said a senior HPCL official.

"In April and May, these margins have become negative. We are losing money on every litre of petrol and diesel we sell," he said.

LPG under-recoveries tell a similar story. IOC officials say the company will have to take a hit of Rs 1,100 crore for the April-May period.

The cumulative hit to the industry would be around Rs 3,000 crore, an IOC official said.

Even though since April 2002 oil companies have the freedom to review product prices every fortnight, they have not increased prices of transport fuels since January 1, 2004, presumably deferring to the incumbent Government's wishes which did not want fuel price hikes going into general elections.

But with international crude prices reaching record highs it is almost impossible for State-owned companies to maintain status quo, say officials.

"The situation is expected to worsen. At least in the coming six months," said a senior HPCL official.

"If demand for crude, especially from China, US and Europe, continues to increase while supplies remain static, there is very little hope of prices remaining stable or coming down to sustainable levels. The Government would have to keep this in mind when it takes any step - whether on raising product prices or reducing customs duties on crude or transport fuels," the official said.