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Companies, govt not giving buyers full benefit of oil price fall?

business Updated: Feb 07, 2015 02:13 IST
Anupama Airy
Anupama Airy
Hindustan Times
fuel price

The man on the street is cheering the plunging petrol and diesel prices, but he may be getting shortchanged by over Rs 11 per litre while filling up his car at the fuel station.

Petrol costs Rs 56.49 and diesel Rs 46.01 in Delhi. But state-owned oil companies (Indian Oil, HPCL and BPCL) are understood to be not passing on Rs 3.50-4 per litre of gains accruing on account of a fall in global crude oil prices.

Moreover, the government, with as many as four excise duty hikes on petrol and diesel since November 12 that add up to Rs 7.50-8 a litre, has also used the opportunity to mop up revenues.

Crude oil prices are down by nearly 70% since June last year, averaging $46 a barrel in January from $109 in June. Retail petrol price, after 10 cuts since August 2014, is down by Rs 17.11 per litre, and diesel by Rs 12.96 a litre in six cuts since its deregulation in October 2014.

Senior officials of oil companies as well as the oil ministry denied that gains were being withheld from consumers. However, privately senior oil company officials admitted that some gains on petrol and diesel have been held back to recoup inventory losses.

IOC chairman and managing director B Ashok vehemently denied holding back margins on petrol and diesel.

“If we were making undue margins, it should reflect somewhere at the end of the year....please see our balance sheet...there has been absolutely no change in our pricing policy, and we have been following the same practice of aligning our fuel pricing with product prices in the global markets,” he said.

Ashok said it is a myth that if crude oil prices fall by 50%, domestic fuel prices should fall by a like proportion. “We align domestic fuel prices in line with global product prices. Unlike global crude oil prices that fell over 31% in January, global petrol prices fell by only 26% and international diesel prices by just 17%,” he claimed. “So how can you justify the comparison of falling global oil prices with that of domestic fuel prices?”

Oil firms buy crude oil at one price but by the time it is processed and turned into fuel — which may take up to six weeks — a fall in international rates results in inventory loss.

Alongside, by raising excise duties on petroleum products, the government has caused many investors to wonder if India is serious about its deregulation policy. “These revenues could be used to actually benefit consumers when global oil prices go up… a reduction in excise duty at that time could save consumers from a steep hike in petrol and diesel prices,” a petroleum ministry official said.

A senior official at a leading private energy company said, “There is absolutely no clarity on what will happen when the oil prices go up…neither the bureaucrats or the politicians want to have any discussion relating to this, making it difficult for us to firm up our investment plans for fuel retailing in India.”

Companies such as Reliance Industries are taking a cautious approach. Reliance has only announced the re-opening of 1,400-odd pumps that were shut in the era of high global oil prices.