As international crude prices soften, the burden of subsidies on the government could be getting lighter as the losses on the sale of diesel incurred by state-owned oil marketing companies (OMCs) slipping to R3.80 per litre ? the lowest in nearly two-and-a-half years. The shrinking losses on the sale of petroleum products offer a major relief to India?s large fiscal deficit and to state-owned upstream companies sharing the subsidy burden.
Apart from the fall in crude prices, the partial de-regulation of diesel and a slight gain in the rupee are the major factors helping OMCs cut losses on the sale of the fuel. India?s OMCs, such as Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation, sell diesel, cooking gas and kerosene at a discount to make them affordable for consumers, with diesel representing a majority of the total under-recoveries.
As of May 1, OMCs are incurring daily loss of R256 crore on the sale of diesel, kerosene and domestic LPG, against R348 crore in mid April. The loss of R3.80 per litre on diesel is nearly half of the R6.50 per litre loss incurred last month. The last time they slipped to these levels was in the second fortnight of November 2010 when losses were at R3.43 per litre.
The government plans to increase diesel prices by 40-50 paise monthly with the aim of wiping out losses by 2015. However, if oil prices stay at current levels or slide further, losses on the sale of diesel could be wiped out within a year, much ahead of the target. However, with oil prices being volatile, and OMCs often being forced to defer price hikes because of political reasons, it is nearly impossible to put a timeframe on when losses on diesel sale would be eradicated, analysts said.
As India imports about 80% of its crude requirement, international prices play a decisive role in the pricing of petroleum products. The price of the Indian crude basket ? a blend of Dubai, Oman and Brent crude oil ? averaged $99.38 (or R5,385.40) between April 16 and 30, the first time in 10 months it has averaged below the $100 level. In April last year, the Indian basket averaged around $117.
State-run upstream firms like Oil and Natural Gas Corporation, Oil India and GAIL (India), which sell crude oil and gas at a discount to help fuel retailers cover revenue losses, are also likely to benefit from the fall in crude prices as they can cut back on these discounted sales.
The under-recoveries on sale of petroleum products for FY13 came in at R1.61 lakh crore, with losses on diesel sale representing R92,061 crore, according to figures released by the Petroleum Planning and Analysis Cell. This is significantly higher than the total under-recoveries of R1.38 lakh crore in FY12.
Slipping Down
* Losses on diesel incurred by OMCs slips to R3.80/L, the lowest in two-and-a-half years, as global crude prices slide
* As of May 1, OMCs are incurring daily loss of R256 cr on sale of diesel, kerosene & domestic LPG, against R348 cr in mid April
* Loss of R3.80/litre on diesel is nearly half of R6.50 incurred last month. The last time it slipped to these levels was in Nov 2010
* The govt plans to increase diesel prices by small amounts of 40-50 paise every month with the aim of wiping out losses by 2015
* The price of the Indian crude basket averaged $99.38 between April 16 and 30, the first time in 10 months it has averaged below the $100 level
* Total under-recoveries on sale of petroleum products for FY13 was R1.61 lakh crore, with losses on diesel representing R92,061 crore