CAG to audit under-recoveries of oil companies

After oil and gas field contracts, the Comptroller and Auditor General (CAG) wants to audit huge under-recoveries or revenue losses reported by state-run oil retailers on sale of diesel and cooking fuels.

After oil and gas field contracts, the Comptroller and Auditor General (CAG) wants to audit huge under-recoveries or revenue losses reported by state-run oil retailers on sale of diesel and cooking fuels.

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Indian Oil Corp (IOC), Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL) sell diesel, domestic cooking gas (LPG) and PDS kerosene at government controlled rates that are way below market price.

The difference between the retail sale price and market rates is reported as under-recovery or revenue loss and the government makes good almost all of it.

"CAG has requested for auditing the under-recoveries of oil marketing companies (OMCs). We have told them they are most welcome to do so," a top oil ministry official said.

"It will be a performance audit".

Oil firms price fuel at Trade Parity Price which is made up of 80% of the actual cost of import of fuel at a port, and the remaining 20% being the price realised if the fuel were to be exported.

At this price, the three firms would end the fiscal with a mind-boggling revenue loss of Rs. 1,92,951 crore, of which the government would have to bear at least Rs. 115,770 crore.

In 2011-12, the government provided Rs. 83,500 crore cash subsidy to meet over 60% of Rs. 1,38,500 crore revenue loss. Upstream firms like ONGC chipped in Rs. 55,000 crore.

"Considering the huge subsidy outgo, the CAG rightly wants to audit the way under-recoveries are calculated," the official said.

CAG had last year audited the production sharing contracts (PSC) that private firms like Reliance Industries and Cairn India had signed for oil and gas fields and pointed to serious anomalies in the contracts.

IOC had in April-June reported the biggest quarterly net loss by any company at Rs. 22,451 crore as the government had failed to compensate OMCs for under-recoveries on fuel sales.

HPCL reported a net loss of Rs. 9,249 crore in Q1 while BPCL posted a net loss of Rs. 8,837 crore.

The official said the three firms reported a combined revenue loss of Rs. 47,811 crore on fuel sales in the first quarter. Of this, upstream firms like ONGC made good Rs. 15,061 crore by way of discount of crude oil they sell to them.

"We had sought cash subsidy for the remaining Rs. 32,750 crore but the finance ministry has not released any," he said.

Oil firms would most likely post net losses even in the second quarter as the logjam in Parliament over coal block allocation has meant that supplementary demands for grants are not approved and no subsidy payout is possible till the next winter session of Parliament in November/December.