The last price revision of motor spirit (MS) was effected by IndianOil on December 1, 2012, 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 November 16 last. These two price reductions were the result of softening 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 consumers 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 hundred 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, IndianOil, 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 prices 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 sustainable and therefore cannot continue. Continuation of such pricing will only impede the ability of the company to import crude oil and may affect product supply-demand balance; 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 under-recoveries suffered by IndianOil during 2011-12 on the three sensitive and regulated products, viz., diesel, LPG and SKO, against which the Government has to provide hundred 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 revision, the international prices of these products have shown a sharp increase.