Slippery ground

A new year will not mean a fresh start for state-owned oil firms who will have to keep on bearing a fair chunk of the burden of skyrocketing international oil prices. The political compulsions of the government prevents it from switching to a completely free-market system of pricing for petroleum products and the oil companies will have to pay for that.

The average price of the Indian basket of crude imports shot up to $54.98 per barrel during December from $53.14 per barrel in November.

The average price of crude during the current fiscal is working out to a good $16 per barrel higher than the previous year and the domestic prices of petroleum products, especially LPG and kerosene, do not reflect this rise.

Senior IOC officials told The Telegraph that under-recovery for LPG has soared to Rs 200 per cylinder, while that on kerosene is hovering around Rs 11 per litre. The underecoveries on diesel and petrol were more manageable at Rs 1.50 per litre and 20 paise per litre, respectively.

The sharp rise in LPG prices is due in part to the sudden purchases made by Indian companies in October and November to tide over the crisis caused by the unplanned closures of some indigenous refineries. The situation on the oil front has become so delicate that any decision to increase prices has to be taken at the level of the Prime Minister.

ONGC is being made to bear the brunt of the burden of the subsidy on the two cooking fuels which works out to Rs 100 per cylinder for LPG and Rs 11 per litre for kerosene. The upstream oil giant could end up shelling out more than Rs 10,000 crore as reimbursement to downstream oil companies Indian Oil, Hindustan Petroleum and Bharat Petroleum as its share of the subsidy burden. During the last fiscal, ONGC had got away with a payment of a little over Rs 4,000 crore on this account.

The government has also roped in stand-alone refineries such as MRPL, NRL, Kochi Refineries, Chennai Petroleum Corporation and the private sector Reliance to give discounts of 5 per cent on their sales to offer a cushion to IOC, BPCL and HPCL as part of the burden sharing within the oil sector. This contribution is expected to be Rs 1500 crore on LPG and kerosene.