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The Government has decided to revise the prices of sensitive petroleum products. The details are as follows:
Increase in International Prices of Crude oil and Petroleum Products
The international crude oil prices have surged to a new record high on 30.8.2005, with WTI crude oil price at $69.91/bbl. In tandem, the Indian basket of crude oil also recorded its highest level on 1.9.2005 of $62.78/bbl. The crude prices indeed have remained at a much higher level than anticipated level of $38/barrel at the time of the Budget in February 2005 and have increased relentlessly month after month. As against a crude price level of $23.31/barrel in March 2002, the average Indian basket crude prices for 2002-03, 2003-04 and 2004-05 were $26.66/barrel, $27.96/barrel and $39.22/barrel respectively. The Indian basket averaged $49.27/barrel during March 2005, $51.04/barrel during the period 1st April 2005 to 31st July 2005 and $60.05/barrel during August 2005. The trend in international prices is as under:
Trend in International Oil Prices
Period
Indian Basket Crude ($/bbl)
Petrol*
($/bbl)
Diesel*
($/bbl)
Kerosene*
($/bbl)
LPG ($/MT)*
March 02
23.31
26.43
23.27
23.65
194.00
2003-04
27.96
35.03
30.48
31.19
278.45
2004-05
39.21
49.01
46.91
49.50
368.52
Apr 05
49.47
60.23
61.36
69.00
416.80
May 05
47.05
53.37
56.45
61.09
421.80
June 05
52.75
58.38
65.61
66.98
394.80
Jul 05
55.05
63.43
66.89
67.75
399.80
Aug 05
60.05
72.52
68.09
73.42
403.60
*Prices are for Petrol - FOB Singapore; Diesel and kerosene - FOB AG and LPG – Saudi Aramco
International petroleum product prices are now at extremely high levels, most of them reaching all-time highs on 31.8.2005/1.9.2005 as may be seen below:
Period
Indian Basket Crude ($/bbl)
Petrol*
($/bbl)
Diesel*
($/bbl)
Kerosene*
($/bbl)
LPG ($/MT)*
March 02
23.31
26.43
23.27
23.65
194.00
All Time High(Date)
62.78
(31.8.05)
89.50
(1.9.05)
76.51
(31.8.05)
80.84
(31.8.05)
438.20
(1.9.05)
% Increase
169%
239%
229%
242%
126%
Domestic Prices
Petrol
Rs./ltr
Diesel
Rs./ltr
Kerosene
Rs./ltr
LPG
Rs/cyl
As on 31.3.2002
26.54
16.59
8.98
240.45
As on 21.6.2005 (last revision)
40.43
28.45
9.05
294.75
% increase over March 02
53%
72%
0.8%
23%
*Prices are for Petrol - FOB Singapore; Diesel and kerosene - FOB AG and LPG – Saudi Aramco
The Government has protected the common man from the international oil price rise as may be seen from the above table where domestic price rises have not been commensurate with international oil price increase.
From Energy Information Administration (EIA) reports and the latest OPEC statements, international oil prices are expected to continue to remain high and no respite is seen in the near future. Going by the past trend, the international oil prices during winter are expected to be higher that the prevailing prices in summer.
Under recoveries and Losses of OMCs
The persistent rise in international oil prices has outstripped the impact of all measures taken so far to reduce mounting under recoveries. Despite customs and excise duty adjustments over the last financial year and partial increases in domestic retail selling prices of petroleum products, OMCs are likely to incur huge under-recoveries in 2005-06 about twice that in 2004-05. The details of projected under recoveries are:
Rs Crores
Under-recoveries
2003-04
2004-05
2005-06(P) [1]
On PDS kerosene & domestic LPG
9,274
17,842
19,634
On petrol and diesel
-
2,304
20,535
Total
9,274
20,146
40,169
[1] Prorated on April-August 2005 figures for subsidised products. For petrol & diesel, under recoveries have been estimated based on under recoveries during the period 1.4.2005 to 15.9.2005 and taking August 2005 prices for the balance year.
Even after relief given in the taxation structure last year in the months of June and August, 2004, the OMCs have reported a drop in profits during 2004-05 and even after three times larger contribution from upstream companies, suffered first ever losses in their history in the first quarter of 2005-06. The details are as under:
Company
Profit after Tax in Rs Crores
(As per Published Figures)
2003-04
2004-05
Apr-Jun 04 Apr-Jun 05
IOC
7005
4891
1472
(-) 54
HPC
1904
1277
247
(-) 508
BPC
1695
966
147
(-) 431
IBP
215
59
(-) 9
(-) 234
Total
10819
7193
1857
(-) 1227
After including upstream assistance of
3217
(full year)
5948
(full year)
1156
(1st Qtr.)
3257
(1st Qtr.)
Government Policy of Equitable Burden Sharing
In June 2004, the Government formulated a policy of “equitable burden-sharing” to cushion the end-consumer to the extent possible, from the impact of high oil prices, by equitably sharing the burden of any increase in prices between the three principal stakeholders, namely the Government, the oil companies and the consumers.
Package of Measures
In order to mitigate the situation and to restore the financial health of OMCs, a combination of steps have been taken, including increase in domestic retail prices of all petrol and diesel, issue of oil bonds and burden sharing by upstream PSU companies.
Oil Bonds (Government)
The revenue from petroleum sector, so far, has not been commensurate with the projected growth during the budget. Therefore, at this stage, even though excise duty reduction was deliberated upon, no reduction is proposed. The Government will however, consider issue of Oil bonds. Ministry of Finance will, in consultation with RBI, advise the details for this purpose.
b. Increase in Prices of Petrol and Diesel (Consumers)
In order to protect vulnerable section of society who are the main consumers of PDS kerosene Government has decided not to increase the price of kerosene. It may be noted that kerosene prices have not increased since April 2002. Similarly, no increase is proposed in the prices of domestic LPG in view of sensitive nature of this house hold fuel.
Prices of petrol would be increased by Rs 3.00/litre and diesel prices would be increased by Rs 2.00 litre, at Delhi, effective tonight or midnight of 6/7.9.2005. There would be corresponding increase in prices of these products in other places in line with applicable local taxes, freight etc.
c. Contribution from Oil Companies
Despite all the above measures, the burden of under-recoveries on OMCs would still remain substantial. Upstream oil companies and stand alone refineries would be required to contribute to partly make up the burden.
Impact of Package of Measures
As a result of above package of measures, there would be no impact on the vulnerable sections of society, or house wives for that matter and the burden would be least on the common man. Part of the burden would be borne by the government through issue of oil bonds and the balance would be borne by the OMCs.
Ministry of Petroleum & Natural Gas
New Delhi : Bhadrapada 15, 1927/ September 06, 2005
RCJ/GS/ “Revision of Petroleum Prices”
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