Aiyar: Taking stock

New Delhi, June 4: Petroleum minister Mani Shankar Aiyar met the chiefs of the public sector oil companies here today to take stock of their latest financial situation. The finance directors of these companies were also present at the meeting to provide a finer picture of their actual cash position.

Since the government cannot afford to go in for a major price hike due to political reasons, it is keen to assess how much the oil companies can actually bear.

Sources say the picture is not as bleak as is being made out because of the high refinery margins that the companies are enjoying. In the last two months, the refining margins of the downstream oil companies — Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum — have been in the region of $6 per barrel. While the marketing divisions of the oil companies have been losing money, there have been gains in the refinery divisions.

IBP, however, is an exception as it does not have any refinery and is solely in the retail sales business. The company is, therefore, reported to have lost around Rs 80 crore in April and May.

Sources say the figures provided by the oil companies on the losses due to sales of petrol and diesel conceal the fact that the domestic prices are fixed on a par with landed imports, which includes a 20 per cent customs duty and the notional shipping costs for imports.

The customs duty and shipping costs are the protection that the government provides to the indigenous refineries. As a result, the indigenous prices of petrol and diesel are more than 20 per cent higher than international prices. In the current emergency-like situation, this is a cushion that the government can use to shield the consumer.

No imports of petrol and diesel are being made at present. Instead, these fuels are being exported as there is a surplus output.

The government is already veering around to the idea of scaling down central levies that constitute a large chunk of the price component of petrol and diesel. Similarly, the ad valorem customs duty on crude is another area that is likely to be addressed.

The fact that these duties are based on the value of the product makes them escalate further when crude and petrogoods prices are rising. This has also come into focus and the petroleum ministry is pressing for quantity-specific duties on the lines of the US and Japan.

The oil companies have come under financial strain as they have been asked to hold the price line of petrol and diesel despite soaring crude prices. These companies were already selling LPG and kerosene below the market price and have to foot a major part of the subsidy on the two cooking fuels.