Just when it appeared that the under-recovery on petroleum products would not exceed Rs 80,000 crore this financial year, the fall in the rupee to an all-time low of Rs 58 to a dollar is a severe jolt to the oil marketing companies (OMCs).
They say, at the current exchange rate, the under-recovery is likely to increase by at least another Rs 30,000, taking the figure to above Rs 1,10,000 crore. This would mean an increase of 37 per cent.
Taking into account the drop in international prices, the finance ministry had recently said that the subsidy on petroleum products would not exceed Rs 80,000 crore, when the exchange rate was around Rs 54. "For per Rs 1 increase, the impact on under-recovery would be around Rs 9,000 crore annually. In the past month or so, the rupee has depreciated by Rs 2-2.5. This means that at the present level, the subsidy figures are expected to cross the Rs 1,00,000-crore mark," P K Goyal, director (finance), Indian Oil Corporation
, told Business Standard.
On the other hand, it is seen as a blessing for Reliance Industries
, as it bills gas consumers such as fertiliser plants and power stations in dollars. For Oil and Natural Gas Corporation, also in the business of producing oil and gas, the rupee devaluation should have worked to its advantage but for the subsidy burden it bears. "The worrisome thing is because of the current account deficit. If you see the rupee is falling, it is a lot because of the current account deficit. The finance ministry had recently come out with a statement that indicated even if subsidy burden comes down to Rs 80,000 crore, the share of upstream companies was likely to be around Rs 60,000 crore," Sudhir Vasudeva, chairman of ONGC
, told Business Standard last week.
The under-recovery on diesel had gone up to Rs 4.87 a litre as on June 3, while that on kerosene and liquefied petroleum gas was Rs 27.75 a litre and Rs 335.14 a cylinder, respectively.
"As far as diesel prices are concerned, we are anyway going for a monthly hike of 50p a litre as per the decontrol measures. We would get a clear picture about the impact in another five days and then a call would be taken on petrol prices," said K V Rao, director (finance), Hindustan Petroleum
According to an Angel Broking report, the currency is poised for further weakening and could test levels of 59 and 59.60 on the upside on a short-term basis, causing jittery nerves for OMCs. "For the moment, international prices appear to be checked. But the exchange rate would remain a serious concerns as far as under-recovery for OMCs are concerned," said Debashish Mishra, senior director of Deloitte in India. The average crude oil prices for the months of April and May were $101.58 and $101.14 a barrel, respectively, while the average figure for 2012-13 was $107.97.