Murali Gopalan
 
Mumbai: Finance minister P Chidambaram was quoted a couple of days ago saying that he was relieved about inflation being stable. After all, the figure of 7.61% reflected only a marginal increase from 7.57% a week prior to that.

However, during the same period, world price of crude shot up from $117 a barrel to $126 and Chidambaram can thank his stars that the three public sector oil marketing companies — IndianOil, Hindustan Petroleum and Bharat Petroleum — have borne the brunt of this hike. Had this impact been passed on to the consumer, the finance minister would not have been so relieved because the figure for inflation would have possibly crossed the double digit mark.

Less than a fortnight ago, DNA had reported that the projected under-recoveries (difference between the actual cost and retail price) for petrol, diesel, liquefied petroleum gas (LPG) and kerosene were Rs160,000 crore this fiscal. Today, this is closer to a mind-boggling Rs 200,000 crore thanks to world prices of these fuels increasing dramatically.

In fact, analysts believe crude will breach the $150 mark during the next 2-3 months, which means the losses on sale will also go up.

IOC, HPCL and BPCL are losing Rs 550 crore daily on account of not being able to realise the actual price of these four fuels which are being subsidised to the customer. Their top brass has been imploring the petroleum ministry for an immediate price increase except that the latter is just in no mood to oblige. So, while the customer is spared the blow, these companies are poised to report disastrous results for the first quarter ending June 30 when losses are going to be “disturbingly high”.

The biggest concern is diesel where the under-recoveries are up to Rs 20.97 per litre from Rs 17.30 in late-April at a time when its use has increased exponentially in the market. Diesel accounts for roughly Rs 125,000 crore of the projected Rs 200,000 crore loss due to under-recoveries.

In contrast, LPG has remained unchanged at Rs 316 per cylinder while petrol is up marginally to Rs 13.97 per litre from Rs 11.50 a fortnight ago. Kerosene’s under-recovery has seen a sharp increase to Rs 28.72 per litre from Rs 17.60.

What the oil industry did not bargain for was the massive consumption of diesel in India over the last two years, which is slated to grow even further this fiscal. The transport sector comprising the railways, trucks, three-wheelers, multi-utility vehicles and passenger cars has been one of the biggest users.

With big multinationals like Daimler, Volvo and ITEC proposing to make more trucks and buses, there will be more demand for diesel. The same holds good for carmakers like General Motors, Volkswagen, Fiat etc who are increasingly opting for diesel.

This is not all. The precarious power situation in most parts of the country has led to greater use of diesel gensets.

“Thanks to frequent power cuts, call centres which work round-the-clock have also installed diesel gensets which only means that it is in constant demand,” says an oil industry official.

In states like Maharashtra, Haryana, Karnataka and Tamil Nadu, industries like automotive and capital goods have their own captive power which is diesel-dependent. The use of the fuel in the construction and mining sectors has also increased significantly over the last 18-24 months. 

Private sector refiners export their diesel because quite unlike their three public sector counterparts, they are not obligated to sell at subsidised prices in the local market. In the process, imports of the fuel have increased, which the official says is “patently unfair at a time when the private sector should do its bit to bail out IOC, HPCL and BPCL”.

There are fears of an imminent diesel shortage should imports become costlier but, for the moment, the situation is under control.

It is now up to the government to act fast and hike prices of petrol, diesel and LPG. As sources say, users of these fuels are sensitive enough to understand that they will have to pay more. The key, though, is to do it in phases and not at one go but even that is not happening.

Source : DNAIndia