STATE-OWNED oil marketing companies (OMCs) Indian Oil, Bharat Petroleum and Hindustan Petroleum are estimated to be piling up under-recoveries — the difference between the retail price and the import price — of about Rs 30,000 crore a month on petrol, diesel and cooking gas, according to a senior government official.
OMCs have been facing severe stress as they have kept retail prices of fuel products unchanged despite a surge in global prices amid the West Asia crisis, said Sujata Sharma, Joint Secretary, Petroleum Ministry. Besides the three fuel products, OMCs are also losing money on sale of aviation turbine fuel, or jet fuel, for domestic flights. Estimated losses on jet fuel sales were not immediately available.
With no plans to compensate the OMCs for their losses on sale of petrol, diesel, and jet fuel below market prices, sources said the comments on ballooning under-recoveries indicates a price hike is imminent. The OMCs too have been pushing for a price increased, they said.
In the case of LPG, the government had stepped in to cushion the impact on OMCs in recent years, and such an intervention can’t be ruled out even this time around, sources indicated.
Sharma said despite the energy crisis due to the West Asia war and the consequent closure of the Strait of Hormuz, fuels that directly impact the common man have not seen a price increase due to a conscious call taken by the government and the OMCs, although it has meant the same has hit the financials of these companies as well as the government.
With an effective halt in vessel movements through the Strait of Hormuz-from where one-fifth of global oil and natural gas flows usually transited-global energy supplies have been hit and prices have skyrocketed. India depends heavily on oil and gas imports to meet its energy needs, and fuel prices in the country are not linked to global oil and fuel price benchmarks.
The crisis has led to retail fuel price surges in a number of countries, with some even forced to ration fuel supplies. There has been no rationing of petrol and diesel in India, although it was done for commercial and industrial LPG to prioritise cooking gas supplies to households.
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While the government had slashed excise duty by Rs 10 per litre on petrol and diesel late March to blunt the impact of high international prices on the OMCs, the retailers continue to bleed heavily. The excise duty cut has resulted in the government foregoing revenue of about Rs 14,000 crore a month, Sharma said. Had the government not intervened with the excise duty reduction, this loss would also have been borne by the three OMCs.
According to industry sources, the OMCs’ under-recoveries in April stood at about Rs 18 per litre on petrol and Rs 25 per litre on diesel.
Petrol and diesel prices have not been hiked for over four years now in India. Moreover, the timing of the current global surge in prices, which clashed with Assembly elections in some states, made it politically fraught for the prices to be hiked. With the elections now over, a hike in prices of fuels like petrol, diesel, and the domestic LPG could be in the offing in the coming days or weeks, according to highly placed sources in the government. Throughout March and April, the Petroleum Ministry assured consumers that there was no proposal to hike fuel prices.
It is inevitable. It is only a matter of time before prices (of petrol, diesel, and domestic LPG) are hiked, a senior government official told The Indian Express last week.
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On the earlier assurances from the Petroleum Ministry that prices won’t be hiked, the official had said that these were political announcements that came in the middle of the state elections, and are definitely a constraint in raising the prices. The effort has been to hold on to the prices for as long as possible, but with no end in sight to the Strait of Hormuz closure, the status quo on prices can’t continue for long. The official didn’t elaborate on the timeline for price revisions.
Petrol is currently priced at Rs 94.77 per litre in Delhi, and diesel at Rs 87.67 per litre. Domestic LPG is priced at Rs 913 per 14.2-kg cylinder in the capital. Fuel prices vary across states due to differences in state levies.
Oil prices have been extremely volatile since the West Asia war began, but the petrol and diesel prices have not been hiked to protect the domestic consumer from this volatility. The Indian crude oil basket, which averaged $70 per barrel last year, averaged over $113 in April. Furthermore, Indian refiners incurred high additional costs due to emergency crude sourcing and a surge in shipping and insurance rates, among others.
While the retail prices of petrol and diesel are deregulated, in practice, the government-owned OMCs-with 90% market share in fuel retail-have kept prices stable in consultation with the government. They incur heavy losses when international oil prices surge, and earn hefty profits when the prices slump. Petrol and diesel prices have been more or less frozen since April 2022.
