A day after a ministerial meeting on fuel prices was postponed indefinitely; the Oil Ministry on Thursday said the government is committed to compensating state- owned firms for the revenue lost on selling fuel below cost. Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp currently lose over Rs 225 crore (Rs 2.25 billion) per day on selling diesel, domestic LPG and kerosene below their imported cost, with global crude oil prices at a two-year high of $92 a barrel.
At a hurriedly called media conference, Oil Secretary S Sundareshan said the revenue loss of the oil marketing companies (OMCs) "would be adequately and fully addressed."
Oil Minister Murli Deora is believed to have been instrumental in postponing today's meeting of the Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee, as he felt a price hike at the present juncture would further fuel inflation.
Sundareshan, however, refused to comment on the reason for postponement of the EGoM meet to consider a price hike of Rs 2 per litre of diesel and Rs 30-40 per LPG cylinder. Oil firms currently sell diesel at a loss of Rs 6.09 per litre and domestic LPG at Rs 272.19 per cylinder.
"An impression seems to have been generated that since the EGoM has been postponed, the under-recoveries (or revenue loss) would be left unattended. This is totally incorrect," he said.
Deora and Mukherjee had a meeting in Haldia on December 25 on the issue, he said, adding that the Finance Ministry will not restrict itself to compensating the oil companies for one-third of their revenue loss on the basis of the Rs 68,361 crore (Rs 683.61 billion) estimate made earlier by the government.
Rather, it would reimburse the oil marketing companies on the basis of their actual under-recoveries. "The under-recoveries of OMCs would be adequately and fully addressed by the burden-sharing mechanism, wherein the revenue loss is partly made up by upstream firms, partly by the government and if possible, a small portion is borne by the OMCs themselves," Sundareshan said.
Upstream firms Oil and Natural Gas Corp (ONGC), Oil India and GAIL India will shoulder 33 per cent of the oil marketing companies' subsidy burden, while the Oil Ministry is pitching for half of the revenue loss to be provisioned for in the Budget.
The Finance Ministry had previously stated that it would make up for only one-third of the revenue loss, but Sundareshan today said there was "no insistence by the Ministry of Finance that they will not give more than one-third."
The final compensation figure would be worked out based on the actual revenue loss at the end of the fiscal, he said. Sundareshan refused to say whether a hike in diesel and domestic LPG prices was still on cards.
"That decision is not taken by the Ministry of Petroleum and Natural Gas," he asserted. Originally, the EGoM was scheduled to meet on December 22, but the meeting was later deferred to December 30, before being indefinitely postponed at the last moment.
The Finance Ministry had favoured raising fuel prices in response to the hardening of international crude oil rates to over $90 per barrel, but Deora favours more government subsidies being doled out to lessen the burden on the common man.
Sources said diesel has a weight of 4.67 per cent in inflation, while LPG contributes 0.91 per cent. A hike at this point would further accelerate inflation, which stood at 7.48 per cent in November.
Deora, they said, wants the government to make up for at least half of the Rs 68,361 crore (Rs 683.61 billion) revenue loss state-owned oil firms are likely to incur this fiscal on selling diesel, LPG and kerosene below cost.
"A weak dollar and chilly weather in northern Europe and the United States that resulted in increased heating fuel demand have sent crude oil prices on an upward spiral," a source said.
The under-recovery on diesel today stands at Rs 6.09 per litre, sources said. Besides diesel, the oil firms lose Rs 17.72 on every litre of PDS kerosene sold and Rs 272.19 on each 14.2-kg LPG cylinder.
The oil firms had earlier this month raised petrol prices by Rs 2.94-2.96 a litre, but the hike was short of the required Rs 3.5 per litre increase necessary to bring retail prices at par with the imported cost.
The government freed petrol prices in June this year, but the state-run oil firms, which have a 98 per cent share of the retail market, continue to informally consult the Oil Ministry before revising prices.
The government had decided to make diesel prices market-determined in stages. "Freeing diesel prices at current crude prices is simply not possible," the source said. "They are losing Rs 215 crore (Rs 2.15 billion) per day on the sale of the three products. Also, there are marginal under-recoveries on petrol," the source added.
