The Hindu : Business : Oil firms to seek further rise in prices

Online edition of India's National Newspaper
Tuesday, Aug 24, 2004

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Business

Oil firms to seek further rise in prices

By Our Staff Reporter

CHENNAI, AUG. 23. The national oil marketing companies will seek an increase in petrol and diesel prices this fortnight too, as the recent cut in excise duty on the two products has only partially offset the burden of under-recovery for them.

The under-recovery (from the consumers) on diesel after the cut was one rupee a litre, while on petrol it was marginal, said M. S. Ramachandran, Chairman of Indian Oil Corporation.

"Oil companies will ask for an increase," he told press persons on the sidelines of the 38th annual general meeting of Chennai Petroleum Corporation Limited (CPCL), a group company of IOC, here today.

On the possibility of the Centre announcing more duty cuts, considering the skyrocketing price of crude globally, Mr. Ramachandran, who is also the CPCL Chairman, advocated a wait and watch approach. "It was for the first time that the Finance Ministry had reduced the duty," he added.

But the financial performance of the refineries would not be seriously impaired because of the customs duty reduction on the products, as their margins remained same or more in view of the rising crude prices. The margin of the refineries were dependent on the international price of petrol and diesel, which in turn were worked out at a notional landing price of the products at the nearest seaport to them.

The margin of the refineries would, however, have gone up significantly without the duty cut.

In the first quarter of 2004-05, CPCL's margin was $6 a barrel, whereas last year it was $4.4. The cost of crude purchased by refineries, Mr. Ramachandran said, was $42 two days ago.

To shareholders' queries, he said though the duty cuts would have a bearing on the refinery's bottom-line, "we are not unduly worried about the profitability of the corporation. Everything will not continue in the same stage."

S. V. Narasimhan, Managing Director of CPCL, said the company was hopeful of reducing its debt to equity ratio to 1:1 next year.

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