Economy

Cash-strapped refiners can only wait and watch

| | Updated on: Feb 28, 2011

With nearly Rs 200,000-crore investments earmarked for the next five to seven years, the cash-strapped trio of IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation was hoping for some good news in Monday's Budget.

No such luck as the Finance Minister steered clear of any announcements relating to duty cuts on crude oil and petro-products. Likewise, there is no possibility of any price hike of petrol or diesel happening soon with inflation continuing to be an area of concern. As a result, the three companies will scrape through with nominal profits this fiscal and only increase their borrowings, which are already in excess of Rs 110,000 crore.

Against the grain

This is especially tragic considering that the Centre had announced with much fanfare its intent to go in for gradual fuel price deregulation last June. Petrol was deemed a free fuel whose pricing would be decided by the three oil majors.

It is, of course, a different matter that they are still losing money on the fuel but yet another hike would create a political storm. Never mind that consumption of petrol has grown by nearly 15 per cent despite the fact that has become dearer by nearly Rs 10 a litre over the last eight months.

Diesel killer

The real problem is diesel whose losses account for nearly 60 per cent of the total losses, which are projected at over Rs 80,000 crore for this fiscal. Even though IOC, HPCL and BPCL lose twice as much on kerosene, demand for diesel is rampant across sectors right from vehicles to construction equipment, farms and residential projects.

“If there is some way to discourage diesel consumption, it will help us a great deal. We are being bled to death because of this consumption spiral,” an oil sector official said.

The simpler way is to increase its price so that there is an end to this obnoxious practice of cheap fuel for expensive cars. The only problem here is that the same diesel is used for trucks which carry goods across the country. The inflationary impact, as a result, is a frightening prospect and something the country cannot afford at this point.

Dual pricing

The logical solution would be to go in for dual pricing where deregulated diesel is earmarked for cars and the subsidy element is conserved for commercial vehicles. This is easier said than done as it will lead to rampant fuel adulteration.

One really does not know what the Centre has in mind on the fuel pricing issue. If duties were not touched, the prime consideration would have been revenue. It now remains to be seen if crude oil prices continue to rise with the present levels of unrest in West Asia. Depending on their movement, the Centre may then revisit the subject of duties or contemplate going in for a price hike.

Either way, the procrastination would hardly serve the interests of IOC, BPCL and HPCL which are in a tearing hurry with plans to put up new refineries, pipelines, tankages, terminals and bottling plants. They can ill-afford putting these projects off simply because most of the infrastructure is creaking. Little wonder that the overall spend is in the range of Rs 200,000 crore. The bigger question is: where will the money come from?

Published on November 12, 2017

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