The Hindu : National : Crude oil price breaches the $130 a barrel mark

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Thursday, May 22, 2008
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Crude oil price breaches the $130 a barrel mark

Sujay Mehdudia

NEW DELHI: With the price of crude oil breaching the $130 per barrel mark, the options for the government and the Oil Marketing Companies (OMCs) for undertaking an immediate price hike on domestic motor fuels, kerosene and LPG to restrict their “massive losses” due to heavy subsidisation are fast running out.

With the Finance Ministry refusing to bail out the Petroleum Ministry and the OMCs by issuing enhanced oil bonds to protect these companies from becoming bankrupt, the OMCs are likely to restrict the import of LPG and diesel products to tide over the precarious situation.

The depreciating rupee and an appreciating dollar have made matters worse.

“Critical situation”

“The situation is turning very bad. The crude oil is being predicted to touch the $140 mark within the next few days and the Indian basket has touched $120 per barrel. This is a very critical situation and the government will have to step in and save the OMCs from total collapse. Things are so bad that even oil bonds will not be able to help matters,” a senior Ministry official remarked.

According to latest estimates, the OMCs are expected to incur a whopping Rs. 2,00,000 crore revenue loss on sale of petrol, diesel, LPG and kerosene this fiscal. The IOC, BPCL and HPCL are losing over Rs. 550 crore a day on fuel sales as the government has not allowed them to raise prices despite crude prices more than doubling since February.

These companies currently lose Rs.16.34 a litre on petrol, Rs. 23.49 a litre on diesel, Rs.305.90 per LPG cylinder and Rs.28.72 a litre on kerosene.

Liquidity crunch

The companies are faced with a huge liquidity crunch and borrowing Rs.3,500 crore a month to meet day-to-day expenditure. The borrowings have reached Rs.65,000 crore.

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