Circus of oil pricing

Vol. 6 | issue 7 | August 2012

petroleum pric
Circus of oil pricing
It makes no sense to first make the oil marketing companies sell fuel at below cost and then compensate them with a subsidy. Also, when the oil marketing companies are making such hefty profits, are the latest price hikes justifiable?
by Neeraj Mahajan
In a recent advertisement, the Ministry of Petroleum and Natural Gas claimed to have paid Rs 1,38,500 crore as subsidy to Oil Marketing Companies (OMCs) even as it collected only Rs 83,700 crore as taxes. The government’s claim that it had to reimburse the entire subsidy burden, however, seems to be an eye-wash, as it generally reimburses 60 per cent of the under-recovery to oil companies. The remaining 40 per cent comes from upstream companies like ONGC and GAIL.

Now 60 per cent of the Rs 1,38,500 crore paid as subsidy to the oil companies comes to Rs Rs 83,100 crore, which is Rs 600 crore less than the amount it collected as taxes, with the remaining burden being passed onto the upstream companies. This means that the Government simply paid the subsidy from the tax payer’s money. What is more worrisome is that the government has not been paying the subsidy amount due to the oil companies on time as a result of which they have had to borrow money and pay exorbitant interest. But, then if a financial loss is fully compensated, can it still be called a loss, and if it is so, why is it not reflected in the balance sheets of the OMCs?

According to recent disclosures under the Right to Information Act, none of the public sector companies, singly or jointly, have suffered any loss since the year 2000. Rather, as per the reply to an RTI, the oil marketing companies had collectively logged a net profit of Rs 25,000 crore in 2010-2011. A look at the financial figures of the three OMCs reveals a turnover of Rs 8,33,000 crore and a combined profit of Rs 6,177 crore in 2011-12. The individual share of profit is Rs 3,955 crore (IOC), Rs 1,311 crore (BPCL), and Rs 911 crore (HPCL).
But the most spectacular performance was that of ONGC, which is vying for the top-most slot as the country’s most profitable company. As the country’s biggest oil producing company, ONGC, has already declared a net profit of Rs 19,478 crore in the first three quarters of 2011-12. It is now close to being declared the most profitable company in the country – a position which it lost to Reliance Industries Ltd (RIL) in a nail biting finish in 2010-11.
This clearly shows that the Indian private as well as public sector companies have the potential and capability to make enough  profits and thus not only hold their head high but also make the country proud. Why then do we have a dismal situation where the OMCs need artificial resuscitation and blood transfusion every once a while? Also, when the oil marketing companies are making such hefty profits, are the latest price hikes in fuel prices justifiable? Every time petrol prices are to be raised, the excuse given is that oil companies are running in huge loss………..READ MORE

About gfilesmagazine

gfiles is the country's first independent magazine written, designed and produced for India's civil services—the vast and formidable network of bureaucracies and public sector organisations that provides continuity and stability to this nation's governance.
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