Moily red-flags Finance Ministry proposal on fuel pricing

Red-flagging the Finance Ministry move to cut subsidises by changing fuel pricing norm, Oil Minister M Veerappa Moily today said not compensating oil PSUs for their losses will put question mark on their survival.

The Finance Ministry wants petrol and diesel to be priced at a rate they can get in export market, rather than current practice of pricing the fuels after adding transportation and customs duty to the international price.

"From 2005-06, the oil marketing companies have not been adding any margin on crude oil or on petroleum products. What is import price plus transportation and taxes is all that is there in the selling price," he told reporters here.

Moily said the three OMCs, IOC, BPCL and HPCL, are together projected to end the fiscal with a revenue loss of Rs 163,000 crore in current fiscal. Of this, the Finance Ministry wants to shave off Rs 17,000 crore by changing methodology to export parity pricing (EPP).

"If you decrease their compensation by Rs 17,000 crore, where will they get money for expansion and modernisation of refineries," Moily asked.

Citing example of China which has been expanding refineries at a massive scale, he said oil firms need USD 80 billion to modernise and expand old and obsolete units.

The government compensates most of the revenue loss that the OMCs incur on selling diesel, domestic LPG and kerosene at controlled rates which are way below the cost.

"Where do we get the money if the actual losses are not compensated. They cannot expand or modernise refineries... It is a hand-to-mouth situation for oil companies, they earn in the morning and by evening spend all the money. There is no surplus generated," he said.

Moily said Finance Minister P Chidambaram has been pitching for more investments to revive the slagging economy. "But if there is no money, where can the investments come from."

"I can understand that in the process of consolidation of finance, reducing the fiscal deficit (is important). But is there are no expansions, no investments, this is not going to add up to fiscal consolidation. Merely deducting under recoveries is not going to improve the situation," he said.

The Minister said he will shortly meet Chidambaram to discuss the auto fuel pricing as the very future of oil companies was at stake.

"This is a matter of great concern because overall oil import is 84 per cent of our requirement," he said. "No country can survive if these (oil) companies cannot survive."

"We need to modernise refineries for which surplus needs to be generated. Not covering under-recoveries (on fuel sales) will ultimately sink the oil companies," he added.