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Customers could be complaining about the Rs 5-a-litre petrol price hike but the bigger losers are the public sector oil refiners. “We were losing Rs 10 a litre and should have logically recovered this in full from the market on Saturday. After all, petrol prices were deregulated last year which means an end to any existing subsidy,” an oil sector official told Business Line .
The truth is that consumption of petrol has gone up by 12 per cent despite the fact that it has become dearer by Rs 10 a litre since June 2010 (excluding Saturday's hike). “On paper, we have the freedom to increase prices but in reality, political pressure prevails by the end of the day,” the official added.
As a result, the trio of IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation will end up losing Rs 8,000 crore on petrol this fiscal even after accounting for Saturday's hike. And lest the cynics insist these are notional losses, the outlook for crude continues to be grim which means costlier imports for the rest of the year.
The other piece of bad news is that the petrol price hike will lead to more diesel consumption at a time when it is projected to account for 65 per cent of the fuel losses in 2011-12. In numbers, this translates into Rs 116,000 crore with cooking gas and kerosene taking up the balance Rs 65,000 crore.
The silver lining in the cloud is that there is a compensation mechanism for losses incurred on these three fuels unlike petrol which is out of the ambit of administered pricing. A hike of Rs 10 a litre would have been the logical move on Saturday but this would have led to a furious political backlash.
The refiners are a worried lot though. “Nobody is going to make good the balance Rs 8,000 crore to IOC, BPCL and HPCL. The biggest losers are the shareholders of these companies who will have to live with the reality of suppressed profits each year,” an oil company executive said. As he put it, when people are ready to pay unrealistic prices for new homes or eating out in fancy restaurants, a subsidy for petrol is “perverse”.
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