Hike was a must, and not enough
Mr. B M Bansal,
Chairman,
Indian Oil Corporation Ltd.
The recent hike in petrol prices by the oil marketing companies (OMC) was unavoidable. It was, in fact, less than what we would have liked. The price of crude oil is inching up. Nations across the world are already coming to terms with this reality. India’s consumption of petroleum products has grown at around four per cent during 2002-09. In conformity with its high gross domestic product growth, India is projected to register the world’s highest annual primary oil demand growth of 3.9 per cent by 2030 (World Energy Outlook 2009, International Energy Agency, OECD). At present, our domestic production of crude oil meets around 20 per cent of domestic demand for petroleum products. With high GDP growth and stagnant domestic oil production, India’s dependence on oil imports is projected to rise to 90 per cent by 2030.
The OMCs also don’t want to subject our customers to very frequent changes in prices and resort to it only when there are extreme fluctuations at the global level. And the hike is only partial. For instance, take Delhi, where the OMCs increased the price of petrol by Rs. 2.50 per litre. The real increase should have been Rs. 3.72 per litre. The balance of Rs. 1.22 was not passed on and will not even be compensated by the government because the pricing of petrol has been deregulated. Even the hike in the price of petrol on December 16 last was Rs. 2.96 per litre (in Delhi) while the price increase that the OMCs would have liked was Rs. 4.90 per litre. The Indian crude basket has gone up from $87.83/bbl (during the earlier petrol price revision in December 2010) to the current level of $92.31/bbl — an increase of $4.48/bbl. The average global price of petrol during the same period has gone through an even higher increase of $5.17/bbl, rising from a level of $95.30/bbl to $100.47/bbl.
We operate in a commercially linked and economically evolving world. Without a predictable pricing regime, the OMCs would find it impossible to even plan for the short-term, leave alone sustain a highly capital-intensive long-term business. Offering subsidies does not incentivise domestic consumers to economise on the use of petroleum products. There are geo-strategic imperatives of oil security for a country that is still dependent on oil imports, and there is an urgent need to invest in energy resources in India and abroad. But a beginning can be made by accepting to pay a justified price for petrol which is linked to global prices.
Taxes could have been loweredMr. Prabir Purakaystha, founding member, Delhi Science ForumThe price hike was certainly avoidable if only the government had agreed to cut taxes on petrol. Raising the price of petrol again by Rs. 2.52 per litre just a few weeks after a price hike of Rs. 2.96 per litre — totalling to a huge jump of Rs. 5.50 per litre — will only fuel inflation that is already hurting the common man.
With the food inflation raging at more than 18 per cent, this is another blow the United Progressive Alliance (UPA) government has struck against people. The argument of under-recoveries of oil companies is only one part of the picture. The other part is that the government kitty swells up every time petrol prices are hiked. Besides, under-recoveries are not the same as losses, as the government would have us believe.
It is curious that when crude prices go up, petrol prices go up, but when the crude oil prices come down, petrol prices come down much slower and by only small amounts. Not surprisingly, the oil companies have rarely made losses in any year, a loss during a quarter notwithstanding. Yes, when prices go up, in some quarters the oil companies have made losses. But this has been more than made up in the quarters in which the crude oil prices came down but the petrol price did not. That is why in balancing petrol and crude oil prices, one looks at a longer time-frame, not particular weeks and quarters.
How much does the government gain if petrol price is raised? For every litre of petrol, the government levies — Centre and state — are roughly about 50 per cent. Thus, every time the government raises the price of petrol claiming increase in international crude prices, it keeps 50 per cent of the money for itself. The government, therefore, has a vested interest in keeping fuel prices high — it gets a cut if prices rise, and loses revenue when prices decline.
The other issue is that all the margins of oil companies are indexed to the price of oil and not actual costs. For example, the actual refining costs do not change with crude prices but the refining margin does, given the way prices are computed now. That is why even in periods that oil companies are supposedly making under-recoveries, they have made profits.
The government has alternatives to cushion domestic consumers from the rise in international oil prices. If it does not do so, it will impose unacceptable burden on the people. Instead, all this government is trying to do is find more money for itself in the name of reducing the losses of the oil companies.
