The Government has been blaming oil companies for increasing petrol prices as it is the only oil product that is deregulated. But how true is its claim that not raising prices will bleed these companies to death? Every time petrol prices are raised the nation goes through a wave of protests. Indian Oil Corporation, a Navratana company with an annual income of Rs 313000 crore, in the first three months of this financial year has posted a loss of Rs 30700 crore. Another oil major HPCL witnessed a loss of Rs 3300 crore. BPCL's loss was Rs 3200 crore.
Oil analysts say it's wrong to say the companies are making losses, it's about who will foot the subsidy, the government or the oil companies. "As is perceived generally in the market its not that these companies are making losses, neither are they saying so. It is that they are incurring under recoveries and theses under recoveries can be made up by either consumers paying for it or the government putting in that money in the form of subsidy. Government is committed to paying that subsidy to oil companies but it appears it's a timing problem," Associate Director Oil & Gas, PwC Deepak Mahurkar said.
Petrol is not the only culprit. Under-recoveries of oil companies have shot up by 75 per cent. Money is actually lost while selling diesel, LPG and kerosene. Currently oil companies are suffering an under-recovery of Rs 8.58 per litre on diesel, Rs 26.48 on kerosene and Rs 260 per cylinder on LPG. "Initially government's intention was to deregulate complete oil sector but because of political pressure they could not do so. Diesel is the big boy of the whole basket and also a politically sensitive item, so government could not muster guts to deregulate it, result today is petrol user is suffering," Oil Analyst Narendra Taneja said. It is at the retail level that oil companies start losing money as government takes away about Rs 30 on every litre of petrol. But that money is needed to fuel ambitious social sector spending. Raising kerosene, diesel and LPG prices will be politically suicidal so for now the middle class will have to pay more for petrol and oil companies will feel squeezed.
Source http://ibnlive.in.com/news/petrol-prices-could-dip-oil-companies/200539-3.html

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Ministries clash on oil subsidy issue





EGOM meet to mull raising diesel prices on Thursday . SERIOUS differences have emerged between the petroleum ministry and the finance ministry over the manner in which the expected subsidy bill of `70,000 crore on petroleum products is to be financed during the current fiscal.While the finance ministry is willing to foot only one-third of the total subsidy bill, the petroleum ministry is of the view that the oil companies are in no position to bear the crushing two-thirds burden, which would work out to around `47,000 crore.There is a lot of heartburn among officials of the petroleum ministry and the oil companies over the finance ministry’s view that the loss estimate has been inflated with notional costs and needs to be calculated afresh.



The oil firms are also of the view that since they are listed firms there is also the issue of corporate governance that needs to be kept in mind when the price issue is settled.The oil companies have been allowed to hike petrol prices as it is still largely considered to be a rich man’s fuel. However, they are incurring heavy losses on kerosene, LPG and diesel sales.While the petroleum ministry has backed the demand of the oil firms for a rise in the prices of cooking fuels and diesel, the government’s political compulsions have come in the way of implementing the decision.A Group of Ministers headed by finance minister Pranab Mukherjee is expected to look into the issue. The government will walk a tightrope on Thursday between raising diesel prices to reduce the burden of subsidies or holding them steady to keep a lid on inflation.A panel of ministers, empowered to decide fuel prices, is expected to meet on Thursday.



Asia’s third- largest economy, which is trying to cut its deficit, has been looking for new ways to reduce subsidies paid to staterun oil retailers and reflect global crude oil market realities.The oil firms are losing around ` 280 on each LPG cylinder sold to households and around ` 6 per litre on diesel sales.Given the political compulsions and the galloping inflation that is taking a toll on its image, the government cannot increase the price of LPG by more than ` 20- 30 per cylinder. Similarly, diesel is a politically sensitive fuel since it is used in farms and public transport sectors and any price rise beyond ` 2- 3 a litre is an extremely difficult proposition, a senior official said.With the Organisation of the Petroleum Exporting Countries ( OPEC) cartel having refused to raise production to meet the increased winter demand for heating fuel in the US and Europe there seems to be no immediate respite in sight either as crude oil prices rose to around $ 94 a barrel on Tuesday.

….by….S. P. S. Pannu / Mail Today newspaper


Mail Today

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Acquisition of oil, gas assets overseas vital for energy security: IOC

With the country's dependence on oil imports set to go up further as the demand increases, oil and gas companies need to strategically acquire equity in oil and gas assets abroad to augment supplies, according to Mr. B.M. Bansal, Chairman and Director (Planning & Business development) Indian Oil Corporation Ltd.About 80 per cent of oil demands are currently met through imports and this figure is likely to go up further in the years to come. The share of oil in the Indian energy mix has risen from 18 per cent in 1960 to around 33 per cent at present, he said.Mr Bansal's speech was delivered in absentia by Mr. N. Srikumar, Executive Director of AP State Office of IOC, at a lecture on ‘21 {+s} {+t} century challenges to public sector: A case of public sector oil and gas companies', organised by the Institute of Public Enterprise here on Monday.

According to Mr. Bansal, the share of public sector undertakings in India's GDP, which was as low as 10 per cent in the early 1970s has today reached to over 22 per cent. IOC's contribution in this growth is significant. The Indian Oil group companies today own and operate 10 of India's 20 refineries with a combined refining capacity of over 60 million tonnes a year. One of the key challenges is with respect to expansion of markets and diversification of businesses. The country's hydrocarbon sector faces plethora of challenges, besides volatile crude oil prices, and policy inconsistencies, which are hampering the growth of the sector, he said.

Subsidy rationalisation
Making out a case for rationalisation, the Indian Oil chief said subsidy rationalisation is another major challenge. While recently, petrol was freed from controls, even today, nearly 60 per cent of the oil basket comprising diesel, LPG and kerosene is still heavily subsidised.
In 2009-10, India consumed over 140 million tonnes of oil and gas and this figure is set to progressively increase to reach over 300 million tonnes by 2030. To augment additional resources, it is estimated that the country would require about $233 billion by 2030, he stated.

The Hindu Business Line

Hyderabad, July 5

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‘Do away with fuel subsidies'

Dr Raghuram Rajan
Mumbai, May 24


India should do away with inefficient subsidies on petroleum products and remove bottlenecks in the acquisition of land for setting up infrastructure projects to promote higher economic growth, according to Dr Raghuram G. Rajan, Professor of Finance at the Booth School of Business, University of Chicago. While underscoring the fact that India is in a relatively sweet spot, Dr Raghuram said the subsidies on petroleum products were misdirected as it was promoting consumption of precious fuel by the rich. The economist suggested that with the international crude oil prices ruling low, the time was ripe for the Government to remove the subsidies and improve the fiscal position. On the issue of land acquisition by infrastructure companies in India, Dr Raguhram said land acted as a barrier to entry and only those with ‘connections' could successfully execute infrastructure projects. —
…from the pages of THE HINDU BUSINESSLINE

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