The diesel price spiral is worrying oil refiners as it is already close to 45 per cent of the total fuel losses of Rs 1,10,000 crore projected for this fiscal.
Diesel's share alone stands at Rs 47,100 crore, followed by kerosene (Rs 25,300 crore), LPG (Rs 25,000 crore) and finally petrol at Rs 12,600 crore.
This was not the case through 2009-10 and even in the early weeks of this fiscal when LPG and kerosene were the bigger “concern zones” as they accounted for nearly two-thirds of fuel losses.
However, the balance has tilted dramatically of late as diesel has seen a surge in its global prices and, along with dearer crude, could make things tricky for the oil sector.
This is because, according to the current compensation formula, Oil and Natural Gas Corporation along with Oil India and Gail (India) will make good petrol and diesel losses. This was all right in 2009-10 when the figure was around Rs 15,000 crore for the whole year.
However, it is a different ballgame for this fiscal with losses on petrol and diesel already projected at Rs 60,000 crore.
“There is no way the upstream oil companies can make good these losses because they will then sink into the red,” an oil sector official told Business Line.
Price deregulation
The only other option, therefore, is price deregulation of petrol and diesel, something which the Centre is in favour of. IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation are already losing nearly Rs 6.50/litre on the two auto fuels.
In the case of kerosene, it is close to Rs 20/litre while for LPG, it is around Rs 250/cylinder.
Fuel demand
“The bigger concern is diesel because we will be in big trouble if demand for the fuel increases,” the official said.
With a power crisis looming large across States, it is feared that more diesel will be required to fuel generator sets which will then burn a deeper hole in the oil companies' pockets.
Will the Centre still go ahead and press for market-determined pricing? Indications are that the Empowered Group of Ministers, entrusted with this task, would free petrol completely from price control and do this in phases for diesel since it has the potential to stoke inflation.
This may not help the oil companies from the viewpoint of checking losses but there is little that they can do.
“There was such severe political opposition to the last price hike that it is going to be even tougher for the Government to push for another round,” sources said.
Though the last couple of days have seen crude prices plummet to $75 a barrel, experts believe this is a temporary phase caused largely by the financial crisis in Europe and that it is only a matter of time before it gets back to the $85/bbl level.
Source: Hindu Business Line
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