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Soaring crude prices — ONGC nets big gains

Our Bureau

New Delhi , Aug. 10

ONE man's meat is another man's poison. And this adage can well apply to the domestic oil industry. The recent spike in global oil prices has helped Oil and Natural Gas Corporation (ONGC) flourish and the public sector oil marketing companies flounder.

During the first quarter of the current fiscal, the average crude price paid earned by ONGC was $7 per barrel over the $28 per barrel average recorded during fiscal 2003-04. This resulted in additional profits of around Rs 1,550 crore. Of this, ONGC paid out Rs 800 crore to marketing companies as partial compensation for the Government not allowing marketing companies to increase retail prices of LPG and kerosene.

The last 40-odd days have further improved ONGC's bottomline, with crude prices hovering in the $39-40-per-barrel region. Every $1-per-barrel increase in crude price rakes in around Rs 74 crore a month for ONGC, which has already made around Rs 1,500 crore during the last 40 days over the $28-per-barrel price recovered during fiscal 2003-04.

On the other side, marketing companies such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) Hindustan Petroleum Corporation Ltd (HPCL) and IBP Ltd have been losing a significant amount of money since they have not been able to transfer the global price hike to the consumer.

While petrol and diesel were sold profitably during the first quarter, LPG and kerosene burdened them with a Rs 3,600-crore dent. Oil companies enjoy limited freedom from the Government in raising prices of petrol and diesel while in the case of LPG and kerosene, there is no freedom at all.

However, over the last 40 days, even the limited freedom has been exhausted, with the crude price rising over the $40-per-barrel mark. Pushed to the limit, the oil companies have sought a cut in excise duties on petrol and diesel from the Government.

According to the IOC Director (Finance), Mr P. Sugavanam, the oil companies have lost around Rs 190 crore in sales this month by selling diesel at below market prices. Since June 15, they have raised the price of diesel by an average 11 per cent, which has, however, not offset the 17 per cent increase in the global price of the fuel in the same period.

The limited freedom granted to oil marketing companies on July 27 has given them leeway to raise prices of petrol and diesel by 10 per cent of an average global product price which covers a three-month period as well as the one-year.

With this mechanism failing to alleviate the crushing burden of rising crude prices, the Government is mulling a reduction in excise duties on petrol and diesel. The Petroleum Ministry has already written to the Finance Ministry seeking zero nil duty for kerosene and LPG as against the prevailing 8 per cent and 16 per cent, respectively.

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