Oil cos' losses on subsidised sales to drop 54% to Rs 33,500 cr in current fiscal

The losses suffered by India’s three Oil Marketing Companies (OMCs) on subsidised sales of petroleum products, domestic cooking gas and kerosene are set to come down by 54% to Rs 33,500 crore in the current financial year, thanks to a historic slump in global crude oil prices and the implementation of the direct cash transfer scheme in Liquefied Petroleum gas (LPG).

The losses were Rs 72,300 crore last fiscal.

The Indian basket of crude oil price – which represents the average price of Oman and Dubai sour grade crude and the sweet Brent crude oil processed in Indian refineries in the ratio of 72:28 – has averaged $57 per barrel in the current financial year so far, down 32% from $84 per barrel last fiscal. 

“At an estimated average Indian basket price of $55 per bbl and rupee-dollar exchange rate of 65 for 2015-16, we project gross under-recoveries (GURs) of OMCs to decrease by 54% to Rs 33,500 crore,” said K Ravichandran, Senior Vice-President and Co-Head, Corporate Ratings at research and ratings agency ICRA.

He added apart from lower crude oil prices, the GURs would decrease due to lower domestic Liquefied Petroleum Gas (LPG) subsidy as fake or multiple connections have been disconnected or surrendered with implementation of modified direct benefit transfer scheme for LPG (MDBTL). MDBTL has also significantly reduced leakage of domestic LPG, which was getting diverted for commercial and Auto-LPG purposes in the past.

In the first quarter ended June, gross under-recoveries of OMCs fell 69.5% to Rs 8,740 crore as compared to Rs 28,690 crore in the corresponding quarter last fiscal, owing to a 43% fall in the Indian basket crude price leading to reduced losses on LPG and kerosene sales and nil under-recoveries on diesel. The share of upstream firms in making good the losses also slumped to Rs 1,300 crore against Rs 15,500 crore in the corresponding quarter.

The under-recovery burden on PSU upstream companies, in terms of discounts offered to refiners, decreased significantly to around $5 per barrel in the first quarter of the current fiscal from $56 per barrel in the same quarter previous fiscal. In line with the slide in global crude oil prices, gross realization of upstream companies were lower by around 40% or $46 per barrel during the quarter. However, due to the fall in subsidy burden sharing, net realizations showed improvement.

The government has announced it would share under-recovery of upto Rs 12 per litre on PDS Kerosene while the balance under-recovery on kerosene would be borne by the PSU upstream companies. As a result, Rs 2.95 per litre out of total under-recovery of Rs 14.95 per litre on kerosene for the month of August would be borne by upstream companies. Interestingly, their burden would be nil for September as total under-recovery on kerosene decreased to Rs 11.76 per litre, less than the cap of Rs 12 per liter on government’s share.

The government has also approved a fixed LPG subsidy cap of Rs 18 per kilogram under the direct benefit transfer for LPG which translates into Rs 255.6 per cylinder, as against the current subsidy of Rs 141.68 per cylinder worked out for September. Therefore, there is currently a cushion in the subsidy cap fixed for LPG. However, there is lack of clarity on whether the PSU oil companies will bear the subsidy or it will be passed on to the consumers in case oil prices rise from the current levels.