The long-term mismatch between domestic and international prices has put fiscal pressures on the OMCs which are simply too heavy for the oil sector to remain financially viable. They were able to report annual profits, despite large under-recoveries in 2005-06 and 2006-07, due to government support. If the external support in the form of oil bonds, discounts and sales of shares were excluded, they would have reported losses. Moreover, they need Rs 15,729 crore to fund their capital expenditure in future refineries, green fuel projects and in exploration and production to meet the hydrocarbon needs of the nation.

• What is the financial position due to the current crude surge?

Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum are projected to lose Rs 69,753 crore on sale of four products as the Indian basket of crude oils has touched a record-high of $92.29 per barrel. Petrol is being sold by them at a loss of Rs 8.74 a litre, diesel at Rs 9.92 per litre, kerosene Rs 20.53 a litre and LPG at a loss of Rs 256.35 per cylinder. The government approved oil bonds worth Rs 23,457 crore in October to partially offset the losses, but an equal amount is required to make them break even.

• What are the options available to the government?

With customs and excise duties already removed on subsidised kerosene and LPG, customs duty on petrol and diesel reduced by 2.5 per cent and LPG placed under ‘Declared Goods’, the government can at best cut the customs duty on crude oil to 3 per cent from the current 5 per cent. The dismal growth of 1.5 per cent in central excise receipts from petroleum products may discourage the finance ministry to bring down the assessable value of petrol and diesel by a further cut in their excise duty. The promise to pay in the form of oil bonds could be increased while effecting a Rs 4 and Rs 2 a litre price increase in petrol and diesel.

... contd.