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Business News/ Industry / Energy/  Diesel under-recovery falls to 8 paise per litre
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Diesel under-recovery falls to 8 paise per litre

Regular monthly price hikes at 50 paise per litre across 20 months have brought diesel prices on par with market rates

A Press Information Bureau note said after the price hike implemented on the midnight of 30 August, the loss on sale of diesel by OMCs has come down from Rs1.78 per litre on 15 August to 8 paise per litre on 1 September. Photo: BloombergPremium
A Press Information Bureau note said after the price hike implemented on the midnight of 30 August, the loss on sale of diesel by OMCs has come down from Rs1.78 per litre on 15 August to 8 paise per litre on 1 September. Photo: Bloomberg

Mumbai: Come October, and oil marketing companies (OMCs) will stop losing money on selling diesel below cost, as regular monthly price hikes at 50 paise per litre across 20 months have brought the price of India’s most-consumed petroleum product on par with market rates.

However, this festive bonanza could vanish if the geo-political environment takes a turn for the worse.

India’s three state-owned OMCs—Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—will, however, continue to sell cooking gas and kerosene below cost.

A Press Information Bureau (PIB) note said after the price hike implemented on the midnight of 30 August, the loss on sale of diesel by OMCs has come down from 1.78 per litre on 15 August to 8 paise per litre on 1 September. The PIB note cited numbers from the Petroleum Planning and Analysis Cell (PPAC), a statistical body under the ministry of petroleum and natural gas.

Another small price hike will bring diesel prices on par with market-linked prices.

In January 2013, the government had authorized OMCs to hike the price of diesel every month by 0.50 per litre until it reflects international prices. However, it took more than 20 months, thanks to fluctuating crude oil prices and volatility of rupee against the dollar during 2013-14.

OMCs lost 1.39 trillion in fiscal 2014, as they also sell LPG and kerosene at subsidized rates along with diesel.

PPAC has projected under-recoveries of OMCs for fiscal 2015 at 91,665 crore. Currently, the daily under-recovery on the sale of the above-mentioned products is 195 crore and the price of a crude oil basket for Indian stands at $100.97 per barrel.

In the case of kerosene and LPG, under-recoveries for the first fortnight of September 2014 will be 32.67 per litre ( 32.98 per litre in last fortnight) and 427.82 per cylinder ( 447.87 per cylinder in last fortnight) respectively, the PPAC note suggested.

A note issued by Credit rating agency Icra Ltd on Monday said with the prices coming close to being market-linked, the under-recoveries on diesel are expected to reduce to 15,000 in fiscal 2015, almost one-fourth of the 62,800 crore in fiscal 2014.

“The fall in gross under-recovery should lead to decrease in short-term debt levels and interest cost of OMCs; thereby resulting in improvement in their liquidity position. Besides, the fall in under-recoveries could also lead to decrease in the subsidy burden of the government of India as the government may retain large part of benefits of lower under-recoveries in order to meet its aggressive fiscal deficit reduction target for fiscal 2015," the note pointed out.

However, Icra said that the policy on complete de-regulation of diesel is still not clear and that continues to be a concern.

In an 18 August note by international brokerage Goldman Sachs Investment Research, analysts Nilesh Banerjee and Vinit Joshi said, “We believe any policy move towards actual de-regulation of diesel prices, with OMCs having freedom to change retail prices in line with int’l oil prices and $/INR (variation), is a key catalyst for OMCs."​

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Published: 01 Sep 2014, 01:54 PM IST
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