Oil firms losing Rs 580 crore daily

25 May, 2008, 1219 hrs IST, TNN

NEW DELHI: Government-run oil firms will have to wait at least a fortnight before they can raise fuel prices. This would satisfy those in UPA who are arguing for patience on the ground that the rising international crude prices, which had galloped past $135/barrel on Thursday, will slow down to give government leeway to manage the situation.

Even oil ministry, as it presses for a raise, may come around to accept the alternative - and, more crucial, politically more palatable - ways to rescue the oil marketing companies. Other options include raising petrol price by up to Rs 2 a litre but leaving the diesel price unchanged, while simultaneously reducing customs and excise levies. Oil minister may be arguing the brief of the oil companies for higher pump prices.

But as a politician, even he is not in favour of such a major revision and is pushing hard for reduction in customs and excise levies. This is something the Left and Sharad Pawar had been supporting during the runup to the last revision in fuel prices in February. But P Chidambarm is loathe to giving up any earning at a time when he has to pay for a slew of social projects and the farm loan waiver.

Reducing Central excise by Re 1 will provide a relief of approximately Rs 7,000 crore a year to the oil marketing firms.

Similarly, if customs duty is reduced by 5% to nil on crude and 2.5% on motor fuels from 7.5%, the companies will get a relief of roughly Rs 13,300 crore a year. The customs duty reduction has to come on both crude and refined products to avoid giving windfall gains for private companies such as Reliance Industries and Essar, who only run refineries and do not have substantial marketing operations.

But finance ministry will never give up so much of revenue. Chidambarm could be persuaded to reduce customs on fuels by about 2% and some reduction in Central excise. The argument for reducing duties is being forwarded on the basis of the fact that high oil prices has meant the exchequer grew fatter in 2007-08 by Rs 35,000 crore to Rs 180,000 crore from higher customs mopup, other taxes and dividend from oil firms.

For example, oil firms paid $2 as customs per barrel when the price was $40 and have to pay $5 if the price rises to $100. Besides, other taxes push up pump prices. Out of the Rs 45.52 a litre price of petrol in Delhi, oil firms get only Rs 22.02 and the remaining money goes as taxes.

Oil marketing firms are losing Rs 580 crore daily on motor and kitchen fuel sales. They are losing Rs 16.34 a litre on petrol, Rs 23.50 on diesel, Rs 29 on kerosene and Rs 316 on each cylinder of cooking gas. Present pump prices correspond to approximately $70-75/barrel of crude, which they are buying at $125-130 a barrel.

Government had allowed them to raise petrol prices prices by Rs 2 a litre and diesel by Re 1 in February. By then, however, international crude had moved to $90-100/barrel. No wonder, they are looking at closing 2008-09 with a loss of Rs 200,000 crore, up from Rs 70,579 crore in 2007-08.