Topping up the balance sheets

The government cannot milk the taxpayer to clean up oil companies' accounts.

The rollback was predictable, the unexpected hike wasn’t. When State-owned oil marketing companies announced the steepest-ever Rs 7.54 per litre hike in petrol prices on May 23, it became a hot potato that nobody wanted to hold — not oil companies, not the petroleum ministry, not the government and certainly not the Congress that leads the UPA coalition. All through the past 12 months, oil companies were complaining of a combined revenue loss of Rs 138,500 crore in 2011-12 that would reflect on their earnings for the year.

Further, they argued, that it was no longer an issue of financial losses; the availability of petroleum products would be affected as the companies wouldn’t be able to buy crude. The price hike was logical, expected and as predicted by this newspaper, it followed the political compulsions of elections in the five states of Uttar Pradesh, Uttarakhand, Punjab, Goa and Manipur and the passage of the Union Budget.

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The past few days have seen the financial argument reverse, with the companies posting a combined net profit of Rs 21,264 crore during the fourth quarter of fiscal 2012 — double of what it was in fiscal 2011 and 60% more than fiscal 2010. Questions follow: what was the noise on losses and shortages by oil companies all about and how did they make such robust profits?

The answer: what the companies couldn’t get from consumers, they squeezed out of the taxpayers. The Centre after paying Rs 68,481 crore to oil companies in 2011-12, paid an additional Rs 38,500 crore to compensate them to sell diesel, LPG and kerosene at below cost. This was supplemented by an additional support of Rs 52,500 crore from upstream oil companies (Oil and Natural Gas Corporation, Oil India Ltd and Gas Authority of India Limited) that came in the form of discounts on crude oil to these companies.

In effect, it is taxpayers’ money and government borrowings that are keeping the oil companies profitable. In return, the petroleum sector delivered Rs 136,497 crore as taxes to the Centre in 2010-11. This is 17% of the Centre’s total tax and other revenues. In the backdrop of a ballooning fiscal deficit, is it then prudent for the Centre to return the majority of the revenues it earns from the petroleum sector to oil firms as compensation to maintain healthy profits. It should at least create an alternative mechanism that’s transparent.

Today, the Centre is first taxing the consumer and later returning this money to subsidise for the price of fuel. This also appears a case where the government is milking the common man to prevent the balance sheets of its ‘Fortune 500’ companies from slipping into the red.