The Telegraph
Since 1st March, 1999
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Weekly oil price review planned

Calcutta, Nov. 11: Oil companies are planning to review prices every week, instead of doing so every fortnight as they do now, to reflect international trends better.

A senior executive of a petroleum marketing company said the idea was floated at a recent meeting of the top brass of five public sector oil firms. “International crude prices have been fluctuating in a wide range over the past few months, thanks to war fears in the Gulf. A fortnightly assessment of prices is too long a time to cope with. A seven-day review, many feel, might help us get closer to more realistic prices,” the executive said.

Another official working for a PSU that refines oil said losses suffered in the first half of the current fiscal due to the difference between the retail price of fuel and the cost of crude abroad was Rs 2000-2500 crore.

“In the first three months of 2002-03, we could not increase prices, which led to heavy losses for us. But even when we have been allowed to do so, the influence of the government on pricing is so strong that we only get a fraction of the justified increase,” the official said.

The companies are in talks with the government to allow them hikes that are warranted by market trends. “The oil sector has been thrown open in theory, but companies are still chained one way or the other,” he added. According to him, companies do not even get 50 per cent of the increase that the rise in crude prices would justify. If this continues, the bottomlines of all state-owned firms would take a severe beating, the official said.

The one bearing the brunt of the policy that limits the rise in fuel prices is Indian Oil, which is believed to have taken a Rs 850-crore hit in the first half; its subsidiary, IBP Ltd, has suffered losses of over Rs 300 crore. “For IBP, the situation is critical as it is an exclusive marketing company. Its purchase cost is sometimes more than its selling price,” sources said.

Another problem is the payment of subsidy on kerosene and LPG. “The government had made a provision of Rs 4000 crore for subsidy on kerosene and LPG. But, with the figure already flaring up to Rs 12000 crore, the government is not in a position to release additional amounts to oil companies,” sources said. The PSUs are counting on a plan whereby the government issues bonds to cushion losses.

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