India’s Oil Firms Ultimatum To Govt: Cut Taxes Or Face Petrol Price Hike

New Delhi, April 18, IRNA -- State-run oil companies have served an ultimatum to the government that they will raise petrol prices by Rs 9.6 a litre if excise duty is not cut or they are not provided compensation for Rs 49-crore per day loss on fuel sale. 'We have been very patient, not raising prices since December despite our cost of production spiralling. But there is a limit to which we can borrow money and produce fuel for the country,' Indian Oil Corp (IOC) Chairman R S Butola said here. IOC, together with Hindustan Petroleum (HP) and Bharat Petroleum (BPL), is losing Rs 49 crore per day on petrol sale alone. They are losing another Rs 573 crore every day on selling diesel, domestic LPG and kerosene below cost. Butola said oil PSUs in the first 15 days of April lost Rs 745 crore in revenue on petrol, whose pricing was freed from the government control in June 2010. But rarely have the product prices moved in tandem with cost as oil companies bowed to government diktats. 'We have suggested that the government should temporarily end deregulation and give subsidy to make up for the difference between cost of production and sale price. Alternatively, the government can cut the Rs 14.78 excise duty it collects when a consumer buys one litre of petrol,' he said. The states also levy VAT or sales tax ranging from 15 per cent to 33 per cent (Rs 10.30 a litre to Rs 18.74 per litre), which too can be cut to avoid a price hike. If the suggestions are not accepted 'we would have no option but to increase the price of petrol by Rs 8.04 per litre (excluding state levies) with immediate effect', he said. After including 20 per cent VAT, the increase in Delhi will come to Rs 9.60 a litre. Oil companies, Butola said, import crude oil at a price of USD 121.29 per barrel (being the average rate for 1st fortnight of April), and sell at USD 109.30 a barrel. 'This is not sustainable and cannot continue. Continuation of such pricing will only impede the ability of companies to import crude oil and may affect product supply-demand balance,' he said. 'The company is awaiting the government's response to its requests and should no relief come forward, it will have no option but to effect the aforesaid increase in petrol prices,' pti reported quoting an IOC press statement issued later said. Butola said IOC and other oil marketing companies had approached the government several times suggesting that petrol may be brought under the ambit of 'controlled products' temporarily, or statutory levies may be lowered to the extent of loss being suffered. Petrol prices were last revised on December 1, when PSU oil firms reduced rates by Rs 0.65 a litre on top of an earlier price reduction of Rs 1.85 per litre effected from November 16, 2011. The international gasoline prices, against which the domestic rates are benchmarked, have since gone up to USD 132.45 per barrel. 'This is much higher than the price of USD 109.03 per barrel at which IOC and other oil marketing companies are selling petrol (excluding State levies),' the statement said. Oil PSUs 'inability to effect the price increases during the period December 16, 2011 to March 31, 2012 has resulted into total under-recoveries (revenue loss) of Rs 2,287 crore.' For the full 2011-12 fiscal, IOC lost Rs 2,236 crore on selling petrol below cost during different times of the year and the industry (IOC plus BPCL and HPCL) together lost Rs 4,859 crore. These were over and above Rs 138,800 crore the industry lost on selling diesel, domestic LPG and kerosene. Earlier, making a case for raising prices of diesel, kerosene and LPG, the Reserve Bank of India (RBI) Tuesday said hike in rates of petroleum products is necessary to arrest fiscal slippages. 'Overall from the perspective of vulnerabilities emerging from the fiscal and current account deficits, it is imperative for macroeconomic stability that administered prices of petroleum products are increased to reflect their true costs of production,' RBI Governor D Subbarao said in the Annual Monetary Policy Statement for 2012-13. While petrol prices are market-linked, the government fixes the rates of LPG, kerosene and diesel, which results in a large budgetary expenditure on subsidies. Global crude oil prices have surged since the beginning of 2012 on account of geo-political concerns in the Middle East and abundant global liquidity. The price of Brent crude rose to $120 a barrel in mid-April from $111 in January./end