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 being the price reduction of Rs. 0.78/litre (Delhi market) on December 1, 2011. Thereafter, due to domestic market 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 increased 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 during the current fiscal, under-recovery has shown a downward trend from Rs. 8.04/litre in the second fortnight of April 2012 to Rs. 7.17/litre in the first fortnight of May, and further to Rs. 6.28/litre during the next fortnight.
Given the losses being incurred, the Indian Oil Corporation 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, additional 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, namely, HSD, SKO (PDS) and LPG (Dom). The last revision in the selling price of sensitive products 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 Corporation and, impact of changes in these factors would be considered in determining the selling price of MS in future.