India’s largest oil marketing company, Indian Oil Corporation (IOC), has decided to petition the government to return to the government-controlled pricing regime for petrol.
India’s largest oil marketing company, Indian Oil Corporation (IOC), has decided to petition the government to return to the government-controlled pricing regime for petrol. The government had decontrolled petrol pricing in June 2010 but that doesn’t seem to be working for the oil marketing companies (OMCs).
Behind this desperate pressure tactic is the fact that the companies are bleeding, as the price of petrol, in reality, is tightly controlled by the government. In the past two years, even though the government has claimed that it did not interfere with the OMCs’ petrol pricing decisions, the OMCs have been facing huge losses, which are not compensated by the government.
If the government accepts this demand, it will be caught between a rock and a hard place. It wants to retain its reformist image on paper, but any fuel price hike has deep political repercussions. So, the OMCs bear the brunt financially while the government nudges them to play around with petrol prices.
“We will make a strong case for bringing petrol prices under government control once again. Inflation is high, and we understand the government’s position. We don’t want the customers to suffer,” said RS Butola, CMD, IOC.
IOC’s finances are dwindling, with its borrowings touching Rs90,000 crore. The company’s maximum limit is around Rs1.1 lakh crore. The company fears a cut in its credit rating which will hit its capacity to borrow money from the market. IOC’s management has even given a presentation to foreign rating agencies requesting them to rate on the basis of yearly results, as that is the time when it gets compensation from the government for the losses incurred on the sale of its other products.
According to sources, the managements of three OMCs -- IOC, Bharat Petroleum and Hindustan Petroleum -- had asked for a Re1 hike in petrol price before the monsoon session of Parliament began on August 8. However, to avoid opposition in Parliament, the petroleum ministry asked the companies to hold the price for a month.
At present, IOC is losing Rs20 crore a day in petrol sale. The losses incurred won’t be compensated by the finance ministry as petrol falls under the category of de-controlled commodity.
On the other hand, the under recovery (the difference between the selling price and the actual price that the company needs to charge to remain profitable) on other petroleum products, such as diesel, kerosene and LPG, is fully compensated by the finance ministry in different instalments.
At the current prices, the total under recoveries for the three OMCs on the sale of diesel, LPG, kerosene and petrol would be around Rs1.77 lakh crore, of which Rs6,800 crore would be on the sale of petrol.
“If the government can pay Rs1.7 lakh crore, because the price of those products are under control, it would be better for us to have the price of petrol under control and get compensation for that as well,” said Butola.
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