OMCs face further margin erosion on petrol

Last Updated: Mon, Dec 10, 2012 03:32 hrs

Oil marketing companies ( OMCs)' margin of over Rs 2 on every litre of petrol has been eroded in the current fortnight, due to a spike in the international petrol price and a weaker rupee.

The margins were down to near-negligible in the current fortnight, though they were healthy even after the companies took a price cut of Rs 0.95 a litre on November 15.

OMCs review petrol prices in tune with the international price on a fortnightly basis.

The average international price hardened from $113.74 a barrel during the first fortnight of November to $118.64 in the second one. The dollar-rupee exchange has moved from Rs 54.24 to Rs 55.21 between the two periods.

Price build-up of petrol in Delhi Effective
Nov 16,’12
Dec 1,’12
 C&F price of petrol ($/barrel) 113.74 118.64
 Average exchange rate (Rs /$) 54.24 55.21
 Price paid by OMCs to refineries (Rs /litre) 39.65 42.11
 Price charged to dealers (Rs /litre) 45.03 45.03
 Excise duty+cess (Rs /litre) 9.48 9.48
 Dealer commission (Rs /litre) 1.79 1.79
 VAT (Rs /litre) 10.94 10.94
 Retail price (Rs /litre) 67.24 67.24
Source: Indian Oil

Every dollar decline in global petrol improves margins by Rs 0.34 on every litre of petrol; every Rs 1 strengthening against the dollar has a positive impact of Rs 0.74 on a litre. Accordingly, the refinery transfer price or the price paid by OMCs to refineries for petrol increased from Rs 39.65 in the first fortnight to Rs 42.11 a litre in the next.

"As things stand, a price hike is unlikely soon, as the winter session of Parliament is on till December 20," said a company official.

Petrol was decontrolled in June 2010 but the government-owned OMCs failed to pass on regular desired increases, due to political pressure.

Consequently, they have not made any profit on petrol in the two financial years following the decontrol. The trend does not look different in the current year, too.

The three OMCs - Indian Oil, Bharat Petroleum and Hindustan Petroleum - together lost Rs 2,300 crore on petrol in the first year of decontrol.

The loss expanded to Rs 4,890 crore during 2011-12. In the first two quarters of the current financial year, they have already incurred a loss of Rs 2,600 crore on sale of petrol, due to their inability to change retail selling prices to match market conditions.

IOC, the biggest of the three, had also pleaded with government to move petrol back to a controlled regime, so that the loss gets compensated by the government, as happens with diesel, kerosene and domestic cooking gas, all of which are sold at prices decided by the petroleum ministry.

However, the OMCs are also suffering under-recovery on sale of the latter three products.

The projected under-recovery on these three is expected to cross Rs 160,000 crore for the current year, against Rs 138,541 crore in 2011-12.

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