Petroleum and natural gas minister, Veerappa Moily has strongly opposed the proposed move by the finance ministry to cut subsidises to state-owned oil marketing firms — IOC, BPCL and HPCL — by changing the fuel pricing formula to export parity from the current practice of pricing fuels on a trade
The minister said he will shortly meet finance minister P Chidambaram to discuss auto fuel pricing as the very future of the oil firms was at stake.
“This is a matter of great concern because, overall, oil import is 84% of our requirement,” he said. “No country can survive if these companies can’t survive.”
Moily told reporters that not compensating oil PSUs for their losses will put a question mark on their survival.
The finance ministry wants petrol and diesel to be priced at a rate they can get in the export market, rather than the current practice of pricing the fuels after adding transportation and customs duty to international price.
“From 2005-06, the oil marketing companies have not been adding any margin on crude oil or on petroleum products. What is import price plus transportation and taxes is all that is there in the selling price,” he said.
Citing the example of China which has been expanding refineries at a massive scale, he said oil firms need $80 billion to modernise and expand old and obsolete units.
The government compensates most of the revenue loss that the OMCs incur on selling diesel, domestic LPG and kerosene at controlled rates which are way below the cost.
“Where do we get the money if the actual losses are not compensated. They cannot expand or modernise refineries... It is a hand-to-mouth situation for oil companies, they earn in the morning and by evening spend all the money. There is no surplus generated,” he said.
Moily said the finance minister has been pitching for investments to revive the economy. “But if there is no money, where can the investments come from.”