Losses due to sale of fuel

Rising consumption fuels oil PSUs' fear of losses
..................Ajay Modi / Business Standard

Rising losses due to sale of fuel products like petrol and diesel at government-controlled prices is not the only concern for public sector oil marketing companies (OMCs). These companies are faced with a sharply rising petrol and diesel consumption in tune with the economic recovery and improving industrial activity. The spurt in consumption points to a widening loss since prices of petrol and diesel are capped by the government. In the year ended March 31, 2010, petrol consumption grew by a handsome 13.9 per cent, the highest in more than a decade. Diesel consumption rose by 8.7 per cent, marginally better than 8.4 per cent of 2008-09.

While the OMCs purchase crude oil at international prices, the sale price of products like petrol, diesel, kerosene and LPG are not maintained in line with the international prices. Currently, the OMCs — Indian Oil, Bharat Petroleum and Hindustan Petroleum — lose Rs 5.57 on every litre of petrol they sell, while the loss on every litre of diesel and kerosene is Rs 4.84 and Rs 17.58, respectively. They are also losing Rs 265 on every cylinder of domestic LPG.The OMCs’ underrecovery on the sale of these products is estimated to be Rs 46,051 crore during 2009-10. Under the burden-sharing mechanism for 2009-10, the public sector upstream oil companies will fully compensate the loss on petrol and diesel. The loss on kerosene and LPG is supposed to be made good by the government. However, of the Rs 31,620 crore losses estimated on account of kerosene and LPG, only Rs 12,000 crore has been compensated. Now, along with the rising crude oil price, an added concern for OMCs is the fast rising consumption which will lead to higher losses.

“Rising fuel consumption is a good sign for the economy but it is putting a pressure on the oil industry, especially the OMCs. Other than the evident factor of economic growth, another reason behind the rising consumption is the subsidised price of fuel. Consumers do not feel the pinch of rising price and, therefore, have no urge to conserve,” said R S Sharma, chairman and managing director, ONGC.
The OMCs are concerned if the underrecovery will be fully compensated though there had been assurance from the government. “We are committed to meet the rising consumption. However, if the rising under-realisation is not met, it will add to our miseries,” said G C Daga, director (Marketing), Indian Oil.

According to a recent report by the International Energy Agency, the rise in transportation fuels continues to be supported by car sales. Car sales in India soared 25 per cent — the highest gain in six years — to 1.53 million in the financial year ended March 31. Industrial output rose by over 15 per cent year on year in February. This suggests that the Indian economy, which was less affected by the global recession, remains buoyant, said the report. The report also said that six large non-OECD countries — India, China, Saudi Arabia, Russia, Brazil and Iran — are expected to account for almost three-quarters of the global oil demand growth in 2010. Nonetheless, total oil demand may record subdued growth over the next few months given the structural decline of naphtha and residual fuel oil (which are expected to account for a still significant 22 per cent of the total demand). However, total oil consumption will arguably bounce back strongly in the years ahead as the share of other fuels in the demand pool become larger.
http://www.business-standard.com/india/news/rising-consumption-fuels-oil-psus%5C-fearlosses/393649/