For consumers, however, the increase in rupee value may mean nothing since an increase in diesel and petrol prices is staring at them in the face.
NEW DELHI: The rupee’s appreciation has given a curious twist to the petroleum sector with oil marketing companies (OMCs) heaving a sigh of relief even as crude oil producer Oil and Natural Gas Corporation (ONGC) has added it to its list of reasons against sharing of losses on petroleum products.
For consumers, however, the increase in rupee value may mean nothing since an increase in diesel and petrol prices is staring at them in the face.
With the political leadership gearing up for elections in a few states later this year, many feel this is the right time to take the tough call. Consumers can take solace in the fact that the proposed quantum of rise would have been higher, had it not been for the rupee.
“Petrol and diesel are currently priced Rs 5.9 and Rs 4.8 a litre, respectively, below the international parity price.
This underpricing would have been Rs 9 a litre in the case of petrol alone and the total estimated underrecovery for the current year would have been around Rs 80,000 crore,” said SV Narasimhan, director (finance), Indian Oil Corporation (IOC).
The rupee appreciation has only brought relief and not wiped out underrecoveries, he added. The government is yet to decide on how to tackle the estimated Rs 55,000-crore underrecoveries, but sources said an increase on the lines of the one last June was on the cards.
Petroleum minister Murli Deora has met finance minister P Chidambaram more than once to work out a package that would be a mix of price hike, oil bonds and making upstream (oil and gas producers) companies share part of the burden.
Deora has been maintaining that there will be no increase in LPG and kerosene prices, but the subsidy on account of these fuels has skewed petroleum pricing, forcing private players to exit the domestic retailing scene.
“Subsidy for LPG and kerosene should be given to consumers directly through initiatives like smart card rather than impacting the entire petroleum policy,” Kirit Parikh, member, Planning Commission told DNA Money.
He, however, added that initiatives like these have not been able to take off because of the reluctance on the part of state governments to identify targeted families.
He said the government should work out such packages only for tackling short-term fluctuations. The Indian basket of crude oil that reached $74.62 a barrel on July 20, the highest so far in the current financial year, has since come down marginally to $73.83 a barrel (as on July 26, 2007).
OMCs contest the ONGC case in seeking change in subsidy sharing mechanism. “The incremental increase in turnover is much higher than incremental under recovery presently otherwise how was it possible for ONGC to show higher profits despite a fall in production,” said a senior IndianOil executive.
Parikh, too, gave his reason for not buying the ONGC argument absolutely: “Though it may be true that there has been significant loss in some sense for ONGC, the rupee appreciation does not terribly upset things for upstream sector.”
A back-of-the-book calculation by DNA Money reveals that at an average of $67.13 a barrel for crude oil and the rupee at Rs 44.14 a dollar, one barrel of crude oil during April-June 2006 costs Rs 2,963.11.
In comparison, during the same period this year, at an average of $66.52 per barrel of crude oil and rupee at Rs 41.86 to the dollar, one barrel costs Rs 2,784.52.
This situation may appear advantageous for the oil marketing companies and bad for the oil producers, but ONGC is still making hay when compared to an estimated average of Rs 44 to a dollar during 2003-04 on an average Indian basket of $28, which works out to Rs 1,232.
ONGC has already been made to shell out Rs 3,649 crore for April-June 2007, compared to Rs 5,120 crore in the same quarter last year.
The catch in lower underrecovery lies in the rupee appreciation, though ONGC said earlier last week that its turnover (at Rs 13,728 crore for the quarter) was down 6% from Rs 14,677 crore last year due to a 9.3% appreciation in the rupee and a marginal fall in produc
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