OMCs under recovery: Delay in compensation a concern

OMCs under recovery: Delay in compensation a concern

As under recoveries of oil marketing companies are expected to exceed Rs 1, 30,000 crore this financial year (2011-12), the delay in compensation by the government is causing serious concern, which may make a further dent in OMCs liquidity and increase their borrowings.

“The situation is turning out to be serious. The initial compensation of Rs 30,000 crore by the government has not been delivered fully as yet,” a petroleum ministry official told Deccan Herald.

The proposed compensation was to be paid to the OMCs in three tranches, the final being on Monday, January 23 . However, the government is yet to pay the entire amount as promised, the official said.

According to the latest government data, under-recoveries of oil marketing companies for the full fiscal year is expected to exceed Rs 1.3 lakh crore with the government expected to take over some of the burden.

Under the compensation formula to the OMCs, the government compensates for some of these losses through a cash subsidy, while a part is borne by upstream companies such as Oil and Natural Gas Corporation, Oil India and GAIL through a discount on sale of crude oil and products.

The finance ministry, however, has suggested that upstream companies give a discount of $56 per barrel to state fuel retailers this fiscal year to minimise the subsidy burden on OMCs.

It has also suggested OMCs to absorb 5 per cent of revenue losses on the sale of fuel, to which the OMCs have not agreed saying the delay in the release of cash subsidy by the finance ministry has increased the borrowings and interest burden.

Weakness in the rupee vis-à-vis the dollar in the past as many months and high crude oil prices have pushed the under recoveries of OMCs to a record level of Rs 1,40,000 crore this fiscal as against Rs 78,000 crore last year.

According to a petroleum ministry report, the oil refiners are incurring daily under-recoveries of about Rs 388 crore on the sale of diesel, kerosene under the public distribution system and domestic LPG (liquefied petroleum gas).

The troubles of oil refiners have been worsened by the depreciating rupee as it has been the major cause of rise in import costs. India currently imports around 80 per cent of the fuel required in the country.