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Are you paying to keep oil firms profitable?

business Updated: May 28, 2012 02:07 IST
Anupama Airy
Anupama Airy
Hindustan Times
Anupama Airy

Amid protests over India's steepest-ever petrol price hike last week, many are now beginning to ask the question: Is the government milking the common man to keep its oil companies profitable?

Consider these:
Each time, you fill your car with a litre of petrol in Delhi, the Centre gets richer by Rs. 14.78 and state government earns another Rs. 12.20.

In 2010-11 ( the latest figures available), the Centre and state governments netted Rs. 102,825 crore as taxes collected from the petroleum products you bought.

During the year, one in every six rupees (16%) of the Centre's tax revenues came from levies on petro products — customs duty on crude and excise on products.

In all, the sector fetched Rs. 136,497 crore or 17% of the centre's total tax and other revenues after adding up corporate income tax of oil companies, dividends, service tax, royalties on crude and other receipts.

About a half of these revenues, however, went back to oil companies to help them offset potential losses and remain profitable.

In 2010-12, the government paid Rs. 68,481 crore to oil companies as subsidies to compensate them for selling fuels at discounted rates.

This helped Indian Oil Corp (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (HPCL) to post profits.

Thus, while the government is bolstering its own revenues by high taxes on petroleum products, it is also using part of these revenues to prevent the firms' balance sheets from slipping into red.

"At the global level, these companies are blue chip companies or Fortune 500 companies and we cannot allow their image to be affected at any cost,” said petroleum minister Jaipal Reddy.

The combined profit after tax (PAT) of the three oil firms during 2010-11 stood at Rs. 10,531 crore and Rs. 13,050 crore in 2009-10.

The trends are similar this year.

For 2011-12, while Indian Oil and HPCL are yet to announce their results, BPCL has posted higher-than-expected earnings for the fourth quarter of 2011-12.

The company's net profit has jumped over four times to Rs. 3,963 crore in the fourth quarter against Rs. 935 crore in the corresponding quarter last year.

Economists, however, said aligning retail fuel prices with companies' costs and pruning oil subsidies were crucial for reining in government's fiscal deficit.

"The unsustainably large under-recovery or loss due to selling fuel locally at low prices that has been causing fiscal palpitations forced the price increase," said Rajeev Malik, senior economist, CLSA.

According to the government, a higher fuel prices are needed to cut the ballooning subsidy bill.

"Part of the problem is that there was no action ( on raising petrol prices) for a long time," C Rangarajan, chairman, Prime Minister's Economic Advisory Council told HT. "Price increases in small doses would not have created so much of a concern."