New Delhi: State-run fuel retailers Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation have stopped losing money on sales of petrol and diesel, but may not immediately revert to daily pricing of the two auto fuels because of economic and political compulsions, three people aware of the matter said.
Although international oil prices have softened significantly since their June 2022 peak , these companies do not consider it an appropriate time to restore the daily-pricing mechanism because crude oil prices are volatile, retail inflation is high, and assembly elections are due in crucial states such as Tripura and Karnataka, they added, requesting anonymity.
“The fuel price situation has improved significantly as compared to mid-2022. On average OMCs (oil marketing companies) now have positive margins. That is why the Budget has also reduced LPG [liquefied petroleum gas or cooking gas] subsidy for 2023-24. Petrol and diesel are deregulated products and oil companies are free to adjust their retail prices accordingly. There is no provision in the Budget to help oil PSUs for their losses on petrol and diesel,” one of the three, a senior government official, said.
Budget 2023-24 proposed a ₹2,257.09 crore LPG subsidy, 61% lower than ₹5812.50 crore Budget Estimate (BE) for 2022-23, which was later raised to ₹9,170.50 in the revised budget (RE) of FY23. Apart from that, the government gave a one-time grant of ₹22,000 crore to state-run oil marketing companies (OMCs) for their revenue losses on the sale of cooking gas in RE of FY23.
State-run OMCs have not changed pump prices of petrol and diesel since April 6, 2022, when they were last raised to ₹105.41 per litre and ₹96.67 a litre respectively in Delhi. In May 2022 the Central government steeply reduced excise duty on petrol and diesel for the second time ( the first reduction took place in November 2021; total central excise reduction was ₹13 a litre and ₹16 on the two fuels, respectively) to calm raising inflation. This was also followed by cuts in value-added taxes by several states. Consequently, petrol and diesel rates came down to ₹96.72 per litre and ₹89.62, respectively, in Delhi on May 22, 2022. Fuel rates vary across the country due to local levies.
Email queries sent to the ministry of petroleum and three OMCs – IOC, BPCL and HPCL – elicited no response. Despite fuel prices being deregulated, the government plays a significant role in deciding what they should be.
“On average, OMCs are barely getting some margin on fuels. They are not in a position to exercise their pricing freedom because inflation that came down in November [5.9%] and December [5.7%], again spiked in January. Besides, there are elections in several states. We are keeping our fingers crossed that international oil prices do not surge again,” a second person, an executive at an OMC said. The three OMCs that incurred net losses in first two quarters, made some profit in the quarter ended December 31, 2022.
The latest data issued on Monday showed that retail inflation, based on the consumer price index (CPI), again went above the 6% upper tolerance band of the Reserve Bank of India to 6.52% in January due to rising cereal and milk prices , which is a matter of concern, a third person working in the government, said. The wholesale price index (WPI), however, eased to 4.73% in January compared to 4.95% in December. The weightage of petrol and diesel in CPI is 2.19% and 0.15%, respectively; and in WPI is 1.60% and 3.10%, respectively, he added.
The financial position of the state-owned OMCs has improved significantly, with India’s monthly average crude oil import price falling 32.68% to $78.10 per barrel in December 2022 from a peak of $116.01 a barrel in June 2022. Although, average crude import price rose marginally in January 2023 to $80.92 per barrel, it largely remained favourable, the third person said.