Reduce oil bill by $25 bn: PM to Moily

Written by fe Bureau | New Delhi | Updated: Aug 28 2013, 10:51am hrs
Oil minister Veerappa Moily on Tuesday said that his ministry has been instructed by the Prime Minister to save $25 billion on oil imports in this financial year to help reduce the current account deficit (CAD). I have already made attempts for $22 billion, and I will make attempts for another $3 billion, Moily said, without elaborating. The move comes at a time when the sharp depreciation of the rupee is threatening to upset the Centres fiscal math by causing a spike in the oil import bill.

The forex savings on oil imports planned through a set of measures including an increase in imports from Iran where the payment is made in the rupee is pegged at 1% of GDP. Other measures may include ethanol blending as well as improving project management and efficiencies. A one-time steep hike in the price of diesel was also said to be on the government agenda but Moily said this might not be an immediate option.

As US and western sanctions blocked all payment routes, India pays Iran in rupees in a Uco Bank branch in Kolkata. In 2012-13, India imported about 13 million tonnes of crude oil from Iran, which was partly financed by euro (55%) and rupee (45%) payments.

Indias oil import bill rose 9.2% to $169.25 billion in 2012-13. The oil ministry said that if India was to import 10 or 11 million tonnes oil from Iran this fiscal, it could save a minimum of $10 billion in foreign exchange outflow.

India has been, since July 2011, paying in euros to clear 55% of its purchases of Iranian oil through Ankara-based Halkbank. The remaining 45% was remitted in rupees in accounts the Iranian governments oil company opened in Kolkata-based Uco Bank.

India, which in June won another 180-day waiver from US sanctions after it cut crude oil imports from Iran by over 27%, did not buy any oil from the Persian Gulf nation in first four months of the current financial year as insurance firms refused to provide cover to refiners processing Iranian oil. Imports have, however, resumed this month with Mangalore Refinery and Petrochemicals getting the first shipload on August 17.

Despite rising under-recoveries on account of sale of subsidised fuel, Moily did not announce a diesel price hike on Tuesday. Moily also said India does not plan to allow oil marketing companies to raise diesel prices by more than the approved 50 paise per litre a month. He told a television channel earlier this month that India would consider a request from oil marketing companies to be allowed to raise diesel prices.

Oil ministry officials, however, have not ruled out a diesel price hike before the end of the current parliamentary session. We will consider a range of options to deal with the rising under-recoveries and burden on both upstream and downstream companies. This includes raising diesel prices before the current parliamentary session ends, one official said.

Oil marketing companies have written to the oil ministry asking for fuel prices to be raised due to the rising under-recoveries on account of a sharp depreciation of the rupee against the dollar. What makes matters worse for oil retailers is that crude prices have also been inching upwards of late, edging closer to $110 per barrel levels compared with the $100 per barrel levels seen in July.

Analysts expect that at current rupee levels of 66.24 to the dollar and crude oil prices of close to $110, the under-recoveries could stand at close to Rs 1.6 lakh crore levels. This will be similar to under-recoveries recorded last year. Public sector oil retailers Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation have suggested raising the monthly quantum to cut losses.

The government had in January allowed oil retailers to raise diesel rates by up to 50 paise per month till the losses on the fuel with the highest consumption in the country are wiped out. With prices being raised periodically, the losses on diesel had come down to below Rs 2.90 per litre in May, but with the rupee sharply falling since April, this has resulted in the under-recoveries now rising to Rs 9.29 per litre. In addition to diesel, OMCs suffer under-recovery or revenue loss on sale of PDS kerosene of Rs 33.54 per litre and Rs 412 on the sale of 14.2-kg LPG cylinders.

The price of diesel was last hiked on August 1 when in Delhi it went up by 56 paise to Rs 51.40 per litre. This was the was seventh hike in since January 17, when the government began its drive to wipe out diesel under-recoveries. Every Re 1 hike is expected to reduce under-recoveries by Rs 8,000 crore.