Search the Internet          Tips  Sites: Finance, Investment

Oil PSUs set to take Rs 1-billion monthly hit

Pradeep Puri

The profits of the three oil marketing companies will take a hit of Rs 1 billion every month in case the international crude prices continue to rule around $25 a barrel.

This follows the government's advice to hold the price line for the next three months even after the dismantling of administered pricing mechanism in the petroleum sector from Monday, April 1.

Sources in the Indian Oil Corporation said the corporation, which would have made a profit of around Rs 1 billion every month had the international prices of crude continue to rule around $ 21 a barrel when the prices of these two auto fuels were last fixed on February 28, will now rake in a monthly profit of only Rs 550 million.

However, to soften the impact of the high international prices of crude on the bottomline of domestic oil companies, Petroleum Minister Ram Naik has already petitioned Finance Minister Yashwant Sinha for excise duty cuts.

Naik has pleaded that with the dismantling of APM, domestic oil marketing companies could raise the prices of petrol and diesel as the international prices of crude have jumped by around $4 a barrel in the past one month.

In case the rate of excise duty on these products remain unchanged, the oil marketing companies will have to take the hit if these are to maintain the current price-line.

With every one dollar increase in crude prices, petrol should be dearer by 55 paise per litre and diesel prices should rise by 45 paise.

Naik ruled out any immediate reflection of the rise in global oil prices on domestic petro prices. "I have advised (national) oil companies to plan a strategy in which the changeover (from administered pricing to decontrol) is smooth and customers are not burdened. In the transitionary period oil companies would absorb volatilities in the international market," he said.

Naik said that though he would not give directions to oil PSUs on the price front, he was of the opinion that there should be stability in prices in the interest of the consumer. Price changes should not be frequent. Changes could be effected every month or every three months, he said.

The minister said that since currently only PSUs are marketing petro products, he desired that the changeover to deregulated market should be smooth. He indicated that prices may not undergo changes in the first three months of APM dismantling.

The minister said that beyond the transitionary period, domestic prices would be a reflection of increase or decrease in global prices.

Powered by

ALSO READ:
The Rediff Budget Special
The Rediff-Business Standard Special
Money

Tell us what you think of this report