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MOTORINDIA
l
May 2012
103
Growing under-recoveries may force
OMCs to raise MS prices
The last price revision of motor
spirit (MS) was effected by Indian-
Oil on December 1, 2011, when it
reduced it by Rs. 0.65 per litre on
top of an earlier price reduction of
Rs. 1.85 per litre effected on No-
vember 16 last. These two price
reductions were the result of soften-
ing of the international MS prices
which fell from $120.83 per barrel
to $115.03 and further to $109.03 in
the relevant pricing periods.
The international MS prices have
since gone up progressively and
stand at $132.45 per barrel in the
current pricing period. This is much
higher than the price of $109.03 per
barrel at which IndianOil and other
OMCs are selling MS (excluding
State levies). The company should
have increased the MS price by Rs.
1.89 on January 1, 2012, Rs. 4.08 on
January 16, Rs. 3.13 on February 1,
Rs. 3.47 on February 16, Rs. 5.09 on
March 1, Rs. 6.43 on March 16 and
Rs. 7.66 on April 1. The increase
now called for is Rs. 8.04 per litre
(excluding State levies).
The company’s inability to effect
the price increases during the period
December 16, 2011, to March 31,
2012, has resulted into total under-
recoveries of Rs. 1,036 crores (for
all OMCs about Rs. 2,287 crores).
The under-recoveries suffered by
IndianOil during 2011-12 due to its
inability to pass the increase to con-
sumers has resulted in total under-
recoveries of Rs. 2,236 crores (Rs.
4,859 crores for all OMCs).
In the current year beginning
April 1, 2012 too, IndianOil has
suffered under-recoveries of Rs.
331 crores (Rs. 745 crores for
all OMCs) in the first 15 days of
April. The company, along with
other companies has, therefore,
requested the Government to
declare MS a regulated product
temporarily and provide hun-
dred per cent cash compensation
to OMCs, or reduce the excise
duty on MS from Rs.14.78 per
litre by an amount equivalent to
the under-recoveries on MS and
simultaneously advise the States to
reduce sales tax.
In the earlier periods also, In-
dianOil, along with other OMCs,
had approached the Government
several times on the issue of MS
prices with the suggestion that MS
may be brought within the ambit of
‘controlled products’ temporarily or
that statutory levies on the product
be lowered to the extent of the loss
being suffered by OMCs due to their
inability to pass the increase in pric-
es to consumers.
The current situation where OMCs
have to import crude oil at a price of
$121.29 per barrel (relevant for the
second fortnight of April 2012) and
sell at $109.03 per barrel is not sus-
tainable and therefore cannot contin-
ue. Continuation of such pricing will
only impede the ability of the com-
pany to import crude oil and may
affect product supply-demand bal-
ance; or else the company increase
the price of petrol by Rs. 8.04 per
litre (excluding State levies) with
immediate effect. The company is
awaiting the Government response
to its requests, and should no relief
come, it will have no option but to
effect an increase in MS prices.
It may be recalled that the total un-
der-recoveries suffered by IndianOil
during 2011-12 on the three sensi-
tive and regulated products, viz.,
diesel, LPG and SKO, against which
the Government has to provide hun-
dred per cent cash compensation are
Rs. 75,620 crores (all OMCs about
Rs. 1,38,800 crores). The prices of
sensitive products were revised only
once during the year. Since that re-
vision, the international prices of
these products have shown a sharp
increase.
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