Oil flares, but local firms aren’t cribbing

Oil bonds, rising Re seem to be a good cushion for now

NEW DELHI: The government may have decided to dole out a compensation package for oil marketing companies (OMCs) to save them from going into the red, but there seems to be no respite from the spike in international oil prices.

The benchmark Indian crude oil basket touched a high of $78.88 a barrel at the last closing on Monday.

IndianOil sources say petrol is now being sold at a loss of Rs 3.9 a litre while OMCs are incurring a loss of Rs 6.20 a litre on diesel.

Kerosene sold through the public distribution system is Rs 15.9 a litre less than the international trade parity price, while domestic LPG is being sold at almost 50% discount of Rs 174 a cylinder.

The OMCs are not complaining since the government has put in place a package for compensating them. As a result, losses from OMC balancesheets to the extent of 40%have been taken on by the central exchequer.

Interestingly, the oil bonds worth Rs 23,457 crore for 2007-08 would not even show in the government balancesheet and do not count towards the government’s fiscal deficit for the current year since they usually have maturity periods of three, six and nine years.

About one-third of the losses have been passed on to oil and gas producing companies.
Upstream (oil and gas producing) PSUs Oil and Natural Gas Corporation, GAIL India and Oil India Ltd would shell out Rs 19,227.25 crore as their share of Rs 54,935 crore total under-realisation.

The Indian basket has averaged around $70 a barrel during the current financial year, compared to $62.4 last year.

“The silver lining has been about 10% appreciation in rupee,” said an official.
The 12% increase in crude oil prices over last year’s average is manageable till now with a 10% rupee appreciation.

However, the situation may turn worrisome if there is a further increase in international prices.