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MOTORINDIA
l
July 2012
Under-recoveries of OMCs on
the increase
Post deregulation of MS with effect from June 25,
2010, oil marketing companies (OMCs) are reviewing
MS prices on a fortnightly basis and have revised the
prices on several occasions.
During 2011-12, MS prices were revised five times in
order to bring domestic prices in line with those in the
international market. Of this, there was upward revision
three times, and downward revision twice, the latest be-
ing the price reduction of Rs. 0.78/litre (Delhi market)
on December 1, 2011. Thereafter, due to domestic mar-
ket conditions, it has not been possible to change the
selling price of MS in line with international prices. As
a result, the Indian Oil Corporation has suffered a loss
of Rs. 2,108 crores (Industry: Rs. 4,651 crores) since the
last price change.
Meanwhile, international oil prices have increased
and the dollar-rupee exchange rate has shown further
deterioration. While the Indian basket of crude has in-
creased by 3.5 per cent from $109.23/bbl to $113.08/
bbl, the international MS price has gone up by 14.5 per
cent from $108.62/bbl to $124.42/bbl. The exchange
rate has deteriorated 3.2 per cent from Rs. 51.50 to Rs.
53.17.
The combined effect of changes in the international
MS price and exchange rate has resulted in an increase
in under-recovery since last price change. However,
due to declining international MS prices dur-
ing the current fiscal, under-recovery has
shown a downward trend from Rs.
8.04/litre in the second fort-
night of April 2012 to Rs. 7.17/litre in the first fortnight
of May, and further to Rs. 6.28/litre during the next fort-
night.
Given the losses being incurred, the Indian Oil Cor-
poration is compelled to increase the price of MS by Rs.
6.28 per litre (excluding VAT / sales tax) with effect
from the mid-night of May 23-24. This excludes losses
already suffered till date during 2012-13, which would
require an additional increase of around Rs. 1.50 / litre
in the selling price of MS for the rest of the year.
The above increase of Rs. 6.28 per litre is exclusive of
sales tax / VAT. Given that the rate of sales tax / VAT
varies from 15 per cent to 33 per cent in the States, addi-
tional sales tax of Rs. 0.94 to Rs. 2.07 per litre would be
added to the aforesaid increase. This would be over and
above the existing sales tax of Rs. 10.30 to Rs. 18.74
per litre already being levied in the existing MS prices.
In addition, OMCs are suffering a high level of under-
recoveries on three sensitive petroleum products, name-
ly, HSD, SKO (PDS) and LPG (Dom). The last
revision in the selling price of sensitive prod-
ucts was undertaken with effect from June 25,
2011. As compared with the last price change,
the current under-recovery on HSD has gone
up from Rs. 6.13/litre to Rs. 13.64/litre, for SKO
(PDS) from Rs. 24.16/litre to Rs. 31.41/litre and for
LPG (Dom) from Rs. 331.13/cyl to Rs. 479.00/cyl as on
May 16. At these rates, it is estimated that under-
recovery on sale of sensitive products during
2012-13 would be around Rs. 1,00,000 crores
(Industry: Rs. 1,86,000 crores).
The international MS prices and exchange
rates are being monitored closely by the Cor-
poration and, impact of changes in these fac-
tors would be considered in determining the
selling price of MS in future.
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