State fuel retailers may post a whopping Rs1,21,000 cr earnings

State fuel retailers may post a whopping Rs1,21,000 cr earnings decline on selling diesel, domestic LPG and kerosene at govt-controlled rates this financial, Oil Minister S Jaipal Reddy said.

The revenue loss, termed as under-recovery in oil company parlance, is despite the latest vertical hike in diesel costs by Rs 3 per ltr, kerosene by Rs 2 a ltr and LPG rates by Rs50 per cylinder, besides a reduction in customs and excise duties.

‘Even after these measures, the oil marketing companies ( OMCs) are currently suffering under-recoveries to the tune of Rs 235 cr per day and are expected to incur an under-recovery of over Rs1,21,000 cr during 2011-12,’ Reddy mentioned at a meeting of the Parliamentary_Consultative_Committee on Petroleum and Natural_Gas here.

Before the price hike and reduction in customs duty on crude to zero from 5pct and excise duty on diesel being reduced by Rs2.60 per ltr, state-owned oil firms were projected to lose Rs 1,71,000 cr in revenues during the current financial.
Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum currently drop Rs4.97 per ltr of diesel, Rs23.74 per ltr of PDS kerosene and Rs247 per cylinder of domestic LPG.

‘Besides absorbing a yearly estimated revenue loss of Rs49,000 cr on account of duty reductions, the govt will also be required to compensate a large portion of these (Rs 121,000 cr) remaining under-recoveries,’ Reddy said.

The losses on fuel sales have had a significant adverse impact on the fiscal health of oil PSUs, with diminishing cash flows and decreased resource generation for capacity expansion and modernisation.

‘The OMCs are forced to borrow heavily from the market even for their working capital requirement, that is leading to mounting interest burden on them,’ he said.

In order to insulate the general man from the impact of the rise in oil prices in the international market and in view of domestic inflationary conditions, the govt continues to modulate the retail selling cost of diesel, PDS_kerosene and domestic_LPG.

The current sale cost of these retail fuels in Delhi — Rs41.29 per ltr of diesel, Rs395.35 per 14.2-kg LPG cylinder and Rs 14.83 per ltr of kerosene — is way below the imported cost of the fuel.

‘At these prices, the OMCs are incurring a daily under- recovery (revenue loss) of Rs 235 cr,’ he explained.

Petrol costs have risen by 21 per cent since they were liberated from govt control in June previous year. The price of petrol in Delhi was Rs51.43 a ltr when the govt decontrolled the fuel on 26 June, 2010. Today, it costs Rs63.70 a ltr.

Reddy mentioned the average cost of the basket of crude oil India buys was USD69.76 per barrel in 2009-10, which raised to USD85.09 per barrel in 2010-11.

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