Petroleum ministry seeks Rs13,000 crore Q1 subsidy for oil marketers

The ministry of petroleum has sought a subsidy of `13,000 crore from the ministry of finance for oil marketing companies (OMC) as compensation for under-recoveries on petroleum products for the first quarter of this financial year.

“The total under recoveries for the OMCs stand at `20,000 crore. But we have deducted Rs7,000 crore from that since it would be paid by upstream companies,” said an official in the petroleum ministry.

A one dollar rise in the price of a barrel of crude impacts petrol prices in India by 35 paise per litre.

Subsidies, or under-recoveries, are losses suffered by OMCs because they are forced to sell fuel at government-controlled prices instead of market prices.

“We don’t know how much the government will pay us, but that is what we asked for from the finance ministry,” the official said.
According to the ministry’s estimates, under-recoveries this fiscal is expected to be around Rs53,000 crore at current prices of the ‘Indian basket’ of crude oil.  

Petromin seeks Rs13,000 cr Q1 subsidy for oil marketers
The basket consists of Oman/Dubai sour crude and Brent sweet grade in the ratio of 63.5:36.5.

Crude oil is classified as sweet or sour based on the amount of sulphur in it. Anything less than 0.5% is considered ‘sweet’ - such as Brent, Nigerial Bonny Light, Western Texas Intermediate etc. The sour ones are Dubai, Suez Blend, and Urals.

In April-September this year, the average price of the Indian basket stood at $78.57 per barrel compared with $69.62 last year.
The government deregulated petroleum prices on June 26, but experts said its real impact on the OMCs would come only in the second quarter. As of today, the under-recovery in diesel is around Rs2 per litre, while for kerosene it is Rs15 per litre and for LPG Rs188 per cylinder.

Since deregulation, petrol prices have risen Rs3.50 per litre and diesel by Rs2 a litre. However, the government had asked state-owned oil firms to hold the priceline for petrol, fearing attack from the opposition during the Monsoon session of Parliament.
It was only on September 21 that Indian Oil Corporation was able to raise its petrol prices by 27 paise followed by hike by other petroleum companies in a similar range.