Full Tank? No Sir, We're On Ration

Political compulsions may spare consumers any oil hike, but the industry has no such luck

Full Tank? No Sir, We're On Ration
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Though the petroleum ministry is at pains to scotch such reports, oil companies admit that the situation will become worse as they would require more rupees to mop up the dollars to buy crude oil. "With the dip in rupee, our earlier gains are lost," says S.V. Narasimhan, director, finance, Indian Oil Corporation.

Heavy, Heavy Fuel

(In Rs)

2007-08

2008-09*

Petrol

5.25/lt 16.34/lt

Diesel

4.40/lt 23.50/lt

Kerosene

14.70/lt 29.00/lt

LPG Cylinder

Rs 167 Rs 306

*Estimated under-recoveries by oil firms

While oil companies officially deny any plans to ration supplies, market sources point out that many petrol pumps are already selling only limited quantity of regular oil to push sales of more expensive fuels. "We cannot discount days of rationing or even ‘dry out’ if the present government policies continue, as we cannot use government bonds to buy crude oil," a senior official pointed out. Of course, this could well be a tactic to highlight the oil companies’ plight.

All told, under-recoveries are expected to reach Rs 1,80,000 crore this year, up from Rs 77,300 crore in 2007-08. Despite the government bearing 50 per cent of the subsidy burden through issue of bonds redeemable in the future—and the other state-owned oil and gas companies sharing a part of the subsidy—the oil marketing companies are being forced to resort to market borrowing. For Indian Oil, the market borrowings had reached Rs 35,000 crore on April 1, 2008, as against Rs 27,000 crore at the start of the last financial year and could now go up to Rs 40,000 crore by March 31, 2009.

With elections round the corner, political compulsions will work in the consumer’s favour. But no such luck for industry. Warns V. Raghuraman, energy expert at the Confederation of Indian Industry: "Industry is paying the highest prices for lubricants and fuel like ATF and naphtha. Input costs are rising, and this is a cause for worry." Energy expert T.N.R. Rao is, however, optimistic about India being able to withstand the impact. "There is no oil shock globally thanks to increase in energy efficiencies. So the rupee going up or down is no cause for panic," says Rao. Either way, there is consensus that the government cannot afford to buy today at the cost of tomorrow.

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