Rupee, crude upset govts oil under-recovery math

Written by fe Bureau | New Delhi | Updated: Aug 29 2013, 13:51pm hrs
The double blow dealt by the depreciating rupee and rising crude oil prices will seriously upset the government's calculations of oil retailers' under-recoveries this fiscal, which are now expected to be about twice of what was initially estimated.

Finance minister P Chidambaram had in May announced a plan to contain under-recoveries to R80,000 crore in 2013-14 (from R1.6 lakh crore in FY13). The estimate was made when the rupee stood at 54 to the dollar and Indian basket crude oil price was trading around $100/barrel.

With the rupee now falling to 68 to the dollar and the crude oil price at $110/barrel, the under-recoveries in 2013-14 could surpass R1.5-1.6 lakh crore, not much different from the level last year, analysts said.

According to the petroleum ministry, every dollar increase in crude oil price will add R4,000 crore to the overall under-recoveries, while every rupee fall against the dollar will raise it by Rs 8,000 crore.

Sources said the government might consider a one-time hike of R3-5 a litre in diesel price and a R10 a cylinder hike in domestic cooking gas price to reduce the under-recoveries. Oil minister Veerappa Moily, however, said: We are concerned about the current situation. However, there is no plan to increase either diesel or domestic LPG price at present.

A government official said: We will consider price hikes which could perhaps be effective before the end of Parliament's monsoon session.

Oil firms are losing R10.22 a litre on diesel, R33.54 a litre on kerosene and R412 per 14.2-kg LPG cylinder. Curiously, the level of under-recovery on diesel was at roughly the same level when the government started to reduce it with monthly hikes of 50 paise in January this year.

The worst hit by the current situation are the upstream oil companies ONGC, OIL India and GAIL, which will have to bear a major brunt of the under-recovery burden. Of the R25,579 crore worth of under-recoveries for the April-June quarter, upstream companies have make good R15,303.84 crore. The government would bring in about R8,000 crore and the balance would have to be borne by the oil marketing firms IOC, BPCL and HPCL. Last year, our proportion of under-recovery burden stood at 31%, but this year it has risen to close to 50%. We have requested the government to reduce our burden in the coming months otherwise this will affect our investments towards oil exploration, said an ONGC official.

The rising under-recoveries and delay in compensation by the government have also led to heavy borrowings by OMCs at high interest cost, which have greatly dented their profitability.

The borrowings by the trio of public sector OMCs reached R1,38,522 crore in 2012-13 from about R12,000 crore in 2004-05. Such high borrowings incur great interest costs as well.

The OMCs had reported R25,579 crore of under-recoveries during the first quarter of this financial year. As of August 16, these firms were, on a daily basis, losing a combined R389 crore on sale of sensitive petroleum products.