NEW DELHI/SINGAPORE, Sept 5 (Reuters) - India's top oil
official is grasping at desperate measures to cut the country's
oil costs by nearly $20 billion after the rupee's slide to
record lows has left India facing an oil bill potentially 50
percent higher than on May 1.
Oil Minister M. Veerappa Moily has suggested pricking the
ballooning oil bill with everything from a street theatre
campaign encouraging lower fuel use, to shutting fuel stations,
to increasing imports from Iran.
India's crude import bill was $144 billion last fiscal year
- the largest part of its overall import costs. India, Asia's
third-largest economy, imports about 80 percent of its oil,
which accounts for about 30 percent of its energy needs.
That has hit India hard over the last four months as the
rupee fell 20 percent to record lows near 70 to the dollar. The
economy is struggling with decade-low growth, a record current
account deficit and a steep fiscal shortfall.
International oil prices have gained about 15 percent over
the same period. In rupee terms, the Brent oil benchmark has
gained nearly 50 percent since May 1, when faith in emerging
market growth began to falter just as the U.S. Federal Reserve
started signalling it might wind down its monetary stimulus.
Economist have long pointed to India's fuel subsidies as an
area where it could save money, but raising retail oil prices is
a political problem when few of the nation's consumers have ever
paid market rates for the fuels they use. And elections are
coming up by May 2014.
"Subsidies are something they can do something about and
that is clearly something that they should address ... but you
get into this whole issue about elections and public anger,"
said Praveen Kumar, who leads the South Asia oil and gas
research team at FGE in Singapore.
"People are angry with all that's happening with the economy
and the rupee crashing. I don't see this situation can continue
for too long," he said.
One step that could save $4.3 billion in oil costs,
according to Reuters calculations, would be a hike of around 5
rupees per litre, or about 10 percent, in diesel prices. An oil
ministry source has suggested such an increase might come after
Sept. 6, when the current parliament session ends.
"The rupee depreciation has left us with no alternative but
to pass on costs to customers," said an Indian oil company
official, although noting that demand has edged lower with the
higher oil prices and slower economic growth.
State-owned retailers sell diesel at subsidised prices that
are currently about 10 rupees per litre below estimated true
However, total subsidies for LPG, kerosene and diesel amount
to about $25 billion a year, according to FGE's Kumar, and
"there's no way they can dismantle that over night."
India consumed about 1.4 million barrels per day (bpd) of
diesel in 2012/2013, making up over 40 percent of the country's
total fuel demand.
Nearly half of Moily's targeted savings - $8.5 billion - are
supposed to come from increasing imports from Iran, which are
paid for in rupees because Western sanctions make payment in
dollars impossible. Moily is targeting raising imports to around
260,000 bpd, only about 6,000 bpd lower than the average for
Boosting imports to that level would virtually wipe out cuts
by India that have won it a waiver from Washington's sanctions.
"Frankly there is not much room there because they have to
show that they slashed Iranian crude imports by another 15
percent or risk sanctions from the U.S.," Kumar said.
India's July imports from Iran were just 35,500 bpd, down 82
percent from a year ago because of problems with shipping and
refinery insurance coverage due to the sanctions, which aim to
force Iran to curb its nuclear ambitions.
Boosting Iranian imports would also depend on whether Tehran
was willing to continue to be paid in rupees, which are not only
falling against the dollar but also cannot be traded freely on
global markets. The two countries already cannot balance their
Buying oil in dollars is putting huge pressure on the rupee
and the central bank has now told state-run oil refiners they
must buy their dollars from it, effectively taking 10 percent of
daily demand, or some $500 million, out of the spot currency
These dollar swaps can be for up to six months, leaving the
risk of further depreciation with the refiners, who must hope
the rupee gains before they have to pay back the Reserve Bank of
"Our people (refiners) are not happy. They feel that if they
had done it directly, they could have got a slightly better deal
or could have hedged their foreign exchange risk to some
extent," said an oil ministry source.
The state refiners have asked for a cap on possible losses
or the chance to roll over the swaps if the rupee moves against
State refiners, who also sell petroleum products
domestically, include Indian Oil Corp Ltd, Hindustan
Petroleum Corp and Bharat Petroleum Corp.
Other measures suggested by Moily in letters sent to the
prime minister and the finance ministry included a $2.6 million
public relations campaign that would use "street theatre" to
promote lower fuel usage, which he said could save about $2.5
On Sunday, Moily also suggested that petrol stations could
be shut at night to curb demand - but this was dropped after an
outcry from the opposition.
India's overall crude imports rose 10.3 percent in the first
seven months of the year, according to trade data, as New Delhi
tries to keep the lights on to power faltering growth in Asia's
India is the world's fourth-biggest energy consumer after
the United States, China and Russia but about a third of its
population still lacks electricity.