Financial Daily from THE HINDU group of publications
Tuesday, Sep 06, 2005
Industry & Economy - Petroleum
Oil PSUs moot dual pricing to cut losses
SEEKING SUCCOUR: Mr Subir Raha, Chairman and Managing Director, ONGC; and Mr Sarthak Behuria, Chairman, Indian Oil Corporation, at the 12th Annual India Oil & Gas Review Symposium & International Exhibition in Mumbai on Monday. - Paul Noronha
Mumbai , Sept. 5
IN a bid to bridge their differences with the Union Government on oil price subsidy, oil PSUs are mooting a dual pricing policy as followed in the case of LPG - for domestic and industrial users.
Mr S. Behuria, Chairman of IOC, has called for dual pricing for two-wheeler and four-wheeler users; higher pricing in metros and big cities so as to continue subsidising rural India; and mandatory conversion of up to 50 per cent fuel to premium grade at international parity price line, with the ordinary fuel remaining in the subsidy net.
The public sector oil companies are facing huge losses on account of no price revision by the Government. IOC's losses till date are put at Rs 1,800 crore, that of BPCL at Rs 1,300 crore, and that of HPCL at Rs 1,050 crore.
According to an analysis by Crisil, an immediate increase in prices - Rs 5 a litre for petrol and Rs 4 a litre for diesel - was required for HPCL, BPCL, and IBP to break even in 2005-06.
A three-month delay in price revision would push this up to Rs 7 a litre and Rs 5 a litre for petrol and diesel respectively. These companies are rated to be in the high safety category by Crisil.
The 12th India Oil & Gas Review Symposium held today turned into an occasion for mounting a scathing attack on the Government's `cost-minus pricing formula' on petroleum products. India was pretty much isolated in its policy towards oil pricing as other countries in the region - Thailand, Malaysia, Indonesia, and China - had responded to it.
Thailand had led the other countries by abolishing all oil subsidies in July 2005, while Malaysia responded by increasing prices four times in the last eight months, Mr Behuria said.
"Indonesia, a net exporter of oil, has turned net importer in the last quarter. China has increased prices thrice in the current year and by 2005-end is planning a fuel tax policy targeting vehicle users to reduce petroleum consumption. India, which imports 75 per cent of its crude requirement, has raised prices by 7 per cent between January and August when Dubai crude has risen by 50 per cent," he said.
Such a pricing policy by the country was not sustainable and would prove to be damaging in the long term, he added.
This has led to a situation where funds earmarked for development are getting diverted to pay subsidies.
"Subsidies should be specifically targeted. It is a folly to wait endlessly for the oil price bubble to burst. Prices may touch $80 a barrel during winter," Mr Behuria said.
Little wonder that many big companies are not allocating even 50 per cent of what was earmarked for dividends and share buyback to E&P activities, he added.
With a 7 per cent GDP growth, India is a sound economy and can absorb a price hike, he said, adding that ethanol-blended gasoline and HSD are alternative fuel options.
Mr Subir Raha, Chairman of ONGC, said that the oil companies could not afford to investment decisions to get throttled or delayed on account of regulatory pricing.
Under dual pricing
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