Huge losses of oil companies under finmin scanner

Are the huge losses being projected by state-owned oil marketing companies (OMCs) - Indian Oil, Hindustan Petroleum and Bharat Petroleum - for selling petrol, diesel, cooking gas (LPG) and kerosene below the cost price, for real? HT reports.

Are the huge losses being projected by state-owned oil marketing companies (OMCs) - Indian Oil, Hindustan Petroleum and Bharat Petroleum - for selling petrol, diesel, cooking gas (LPG) and kerosene below the cost price, for real?

HT Image

Suspecting Indian Oil, HPCL and BPCL of exaggerating their under-recoveries (or losses on selling fuels below cost price), the finance ministry has decided to re-validate the figures before releasing subsidy support.

The finance ministry compensates OMCs for under-recoveries.

The OMCs have projected under-recoveries on sale of diesel, cooking gas and kerosene at Rs. 1.9 lakh crore for 2012-13, more than India's defence budget for the current fiscal year or four times that of the NREGA budget.

"Before releasing funds, we will revalidate the under-recovery figures submitted by the OMCs for the first quarter of the current fiscal year," a senior finance ministry official told HT. "There are doubts on the methodology that is adopted by the oil companies to calculate under-recoveries on subsidised fuels and it is felt that these under-recoveries are inflated."

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The finance ministry first released Rs. 68,500 crore in cash subsidies during 2011-12 and another Rs. 38,500 crore in May to compensate OMCs.

Upstream oil firms including ONGC, OIL and GAIL released another Rs. 52,500 crore as subsidy support.

Market experts said a large subsidy dole out by the government and sister oil PSUs has been helping the three OMCs announce profits every year.

"It is a case of financial jugglery that is keeping OMCs alive," said independent analyst SP Tulsian.