Petrol deregulation to have little effect on under-recoveries

Indian Oil Corp and Hindustan Petroleum Corp have increased petrol prices from Tuesday bringing the under-recovery on retailing the fuel to zero, but the companies still see the total under-recoveries for the current fiscal remaining at the last year’s level.

In fiscal 2010, the state-run fuel retail companies — Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum — together posted under-recoveries of Rs46,051 crore selling petrol, diesel, kerosene and LPG at below-market prices.

This year too, the under-recoveries are seen at around Rs45,000 crore and even more.

Indian Oil Corp, the biggest fuel retailer, raised petrol price by 27 paise, Hindustan Petroleum increased them by 26 paise and Bharat Petroleum is expected to follow suit by 28 paise-price hike.

“Although petrol has been deregulated, it was still accruing some under-recoveries even after an increase of Rs3.50 per litre from June 26. We had already suffered losses due to sale of petrol in the first quarter of the current year, and till now there was an under-recovery of close to 30 paise,” a senior Bharat Petroleum official, who did not wish to be quoted, said.

After Tuesday’s increase, the price of petrol will be at par with the market price and fuel retail companies would post some good numbers on sale of petrol.

During a recent media interaction, B Mukherjee, director - finance, Hindustan Petroleum, said, “This year too, our under-recovery will be around Rs11,000 crore, which is almost the same as last year.” He said although petrol has been deregulated, the price of crude has risen in the time from June and that will have an impact on the losses accrued by the oil companies. Since June 26, the price of crude has risen from $74.33 per barrel to $75.13 per barrel for the Indian crude basket.

“Last year the under-recoveries for both Bharat Petroleum and Hindustan Petroleum were around Rs11,000 crore each. This year too, it will be almost the same and for IndianOil it would be double of ours,” said the BPCL official.

Ravi Shinde, president, Federation of All Maharashtra Petrol Dealers Association, said the volume of diesel sold by companies from the outlets constitute almost 65% while the rest is petrol. Therefore, deregulation of petrol does not go a long way in easing the under-recovery pressure on the companies, he said.

The current under-recovery on sale of diesel is Rs2 per litre, for LPG it is Rs157 per litre while for kerosene it is Rs14-15. Although, the government does not intend to free LPG and kerosene, deregulation of diesel is on the cards, but there is no clear indication so far.

IndianOil sees total losses on selling fuel below market prices during the current fiscal at around Rs50,000 crore.

“In the first two quarters, we have suffered losses of Rs11,000 crore due to selling fuel below market price. The losses had gone down a little in the second quarter because of deregulation,” said BM Bansal, chairman and director - business development and planning, IndianOil.