Business Today

Loss on diesel sales touch record Rs 12.56 per litre

Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp are selling diesel and domestic LPG way below cost as the government battles to control inflation.

twitter-logo PTI   New Delhi     Last Updated: March 1, 2011  | 16:48 IST

Losses on the sale of diesel at government-controlled rates have hit a record Rs 12.56 a liter even as state-owned firms look at ways to mitigate a spurt in the cost of raw material (crude oil).

Indian Oil Corp (IOC), Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) are selling diesel, domestic LPG and kerosene way below cost as the government battles to control inflation.

"Diesel is being sold at a discount of Rs 12.56 per liter to its imported cost," an industry official said.

Finance Minister Pranab Mukherjee had in his Budget for 2011-12 ignored calls for a reduction in customs and excise duty to contain the impact of a spurt in global crude oil prices, which have touched a two-year high of US $110 per barrel.

Oil Minister S Jaipal Reddy had last week stated he would take the case for an auto fuel price hike to an Empowered Group of Ministers (EGoM) headed by Mukherjee after the Budget.

The retail price of diesel would have to be hiked by Rs 12.56 a litre if the government was to implement its June, 2010, decision of freeing pricing of the most-consumed fuel from its control.

The three state retailers are together losing over Rs 237 crore per day in revenue on the sale of diesel below its imported cost.

"This is the biggest loss they have ever incurred," the official said.

Besides diesel, IOC, BPCL and HPCL are losing Rs 24.74 per litre on kerosene and Rs 297.80 per 14.2-kg LPG cylinder.

The three firms are losing a cumulative Rs 392 crore in revenue every day on selling diesel, domestic LPG and kerosene below cost.

"For the full fiscal, the three are projected to lose Rs 77,645 crore in revenues at current prices," the official said.

In addition, they suffer a loss of about Rs 2.50 per litre on petrol sales, even though prices were freed from government control in June last year.

If prices are not hiked, the government will have to come up with other ways to compensate the oil marketing companies for their losses.

The Oil Ministry wants the Finance Ministry to compensate the oil companies in cash for at least half of their under-recoveries by making adequate provisions in the Budget.

Upstream oil firms like Oil and Natural Gas Corp (ONGC) will shoulder one-third of the burden.

For the first nine months, the Finance Ministry has approved the release of a cash compensation of Rs 21,000 crore for the three state-run fuel retailers.

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