Price hike to cut OMC's unsustainable under recoveries

New Delhi, June 5 (UNI) Bowing to pressure from oil marketing companies (OMCs) whose profits dwindled sharply after domestic fuel prices were frozen despite soaring global crude prices, the Union Government today effected the hike in the prices of petrol by Rs four a litre and diesel by Rs two a litre.

According to official sources, the global crude prices resulted in unsustainable level of under recoveries running into crores of rupees of the public sector OMCs -- Indian Oil Corporation (IOC), Hindustan Petroleum Corp Ltd (HPCL), Bharat Petroleum Corporation Ltd (HPCL) and IBP Ltd.

The OMCs have argued that collectively the projected burden of about Rs 73,500 crore on them was far too heavy for the oil sector to remain financially viable.

The under recoveries representing the difference between import parity prices and domestic consumer prices calculated for petrol and diesel worked out to an estimated Rs 46,330 crore in 2006-07, a quantum jump from Rs 2,304 crore under recoveries reported in 2004-05.

To add to the woes of the OMCs, the under recoveries were roughly doubling every year.

Despite the hike in petrol and diesel prices, the current level of annual government subsidy on PDS kerosene and domestic LPG stood at Rs 3,000 crore till March 31, 2006, according to figures available.

However, government revenues from the oil sector have consistently risen over the years. In 2005-06, the OMCs' contribution to the exchequer was projected at Rs 126,600 crore against Rs 96,751 crore in 2002-03, Rs 104,375 crore in 2003-04 and Rs 120,946 in 2004-05, the sources said.

The Government has apparently taken heed of the Rangarajan Committee, which went into the pricing aspect of the petroleum products, that warned of the precarious financial position of the OMCs jeopardising the country's energy security and compromising the prospects for growth.

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