OMCs can hike diesel price till under-recovery hits Rs 6/l

Hindustan Petroleum Corporation (HPCL) director (finance) Bhaswar Mukherjee said: “For us, the savings will mainly be on interest cost on under-recoveries. Part of our subsidy burden was compensated by the government, but we received this after several months and so had to incur interest costs in the meanwhile. This will be saved.” He, however, added that the savings on interest costs won't be substantial this fiscal.

Analysts reckon that the proposed gradual increases in diesel prices would help correct the disparity between prices of diesel and alternative fuels like CNG and PNG, benefiting city gas distribution players.

The deregulation of bulk diesel prices would bring in private retailers like Reliance and Essar into this segment of the market, posing competition for state-run retailers.

“The lower under-recoveries of PSU OMCs (IOC, HPCL and Bharat Petroleum) would significantly decrease the subsidy burden of GoI and PSU upstream companies on a full-year basis, if this is implemented on a consistent basis. However, there is lack of clarity on the quantum and timelines of revision of diesel prices given the politically sensitive nature of the issue,” Icra wrote in a report.

It is likely that the government would let upstream oil companies ONGC, Oil India and GAIL cut their share of the subsidy burden corresponding to, if not more than, the overall decrease in the oil subsidy burden. The hike in the number of subsidised LPG cylinders from six to nine per household per year would, however, increase the under-recoveries by

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