Petrol price decontrol seen only in vapour outline

Despite the legal removal of government control on the price of petrol since June 2010, state oil marketing companies (OMCs) continue to lose sharply on its retail sale. A hit of about Rs 20 crore (Rs 200 million) daily for the three OMCs, says the finance director of one of these.

In 2010-11, the first year of the ostensible decontrol, the three OMCs (Indian Oil, Bharat Petroleum and Hindustan Petroleum) together lost Rs 2,200 crore (Rs 22 billion) on petrol sale.

In the first six months of 2011-12, they have lost another Rs 2,500 crore (Rs 25 billion). The full year should see a loss of at least Rs 4,500 crore (Rs 45 billion).

The reason is political. The OMCs are all government-owned and the state's heavy hand is clear in the way any change in pricing is effected. Or, to be more accurately, not effected.

Even parties which are part of the ruling coalition, the Trinamool Congress being one, have not only attacked the government on even the increases allowed, but also threatened to withdraw support.

In January last year, despite a surge in the price of imported crude oil, the OMCs were made to put their price rise plans on hold, due to four states having scheduled Assembly polls later in the year.

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At the start of the current financial year, last April, when the OMCs were losing almost Rs 7 on every litre of petrol they sold, Indian Oil chairman R S Butola said they'd all "consciously" decided not to revise the price to keep "the environment happy" in view of rising inflation.

By May, the loss of retailed petrol had reached Rs 10.50 a litre. Price rises were subsequently allowed, to only partially offset the losses -- they precipitated a storm of political criticism.

This month, price rise plans of OMCs have again been put on hold, with four states going to the polls in due course. The fortnightly review of prices has been skipped twice, although the OMCs current loss on petrol is estimated to have touched as much as Rs 1.50 for each litre sold.

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These companies also lose heavily on the three petro products which are regulated -- diesel, kerosene and domestic cooking gas.

However, the losses here are supposed to be compensated in some form, such as a mix of cash reimbursal from the government and discounts on purchase from upstream refiners such as Oil India and Oil and Natural Gas Corporation.

But, any loss on petrol is to be borne squarely by the OMCs.

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There are two private retailers, Essar and Reliance, and they're affected as the government companies are selling at a subsidised rate. The private competitors' initial excitement, followed by rapid re-opening of closed outlets and expansion plans, is now quite subdued.

Is petrol decontrol, then, a sham? Experts say it is still better than the earlier situation.

"There is a semblance of decontrol but we are still away from real decontrol, as the government continues to have a say in pricing. But we cannot say that the pre-decontrol era was better. This is a step in the right direction but we should strengthen it," said Deepak Mahurkar, associate director, PricewaterhouseCoopers.