Monday, June 23, 2008

Indian government looks into fiscal health of oil companies

by Jo Black

Indian federal government has constituted a high powered committee to examine the financial position of oil companies.

The committee have three members which includes, Mr. B.K. Chaturvedi, Member, Planning Commission, Dr. Saumitra Chaudhuri, Member, EAC, and Dr. Arvind Virmani, Chief Economic Advisor

The committee has been formed to examine the impact of the increase in oil prices between 2004-05 and 2008 on the financial position of oil companies, including upstream exploration companies, refiners and downstream Oil Marketing Companies (OMCs).

The committee will analyse the cash flows and the profitability of all three groups of companies so as to get a clear picture of the changes taking place in their operating positions, particularly the impact on access to credit and cash availability for their operations.

It will revisit the concept of “under recoveries” and examine the reported deficit and the real deficit faced by OMCs as a result of price constraints imposed on them.

In addition, the committee will estimate the financial needs of the refiners and OMCs in order to continue their normal business activities and to meet the energy needs of the economy and the possible sources of funds to meet their financial needs.

And also to examine the available options for burden sharing by all stakeholders, including upstream exploration companies, refiners, downstream OMCs and stand alone refiners.

The domestic oil marketing companies are suffering a huge loss because of higher crude prices in the international market.

The total subsidy bill for the oil marketing companies, as a result, ballooned to over Rs 6.50 billion ($162.5 million) per day from Rs 5.80 billion ($145 million) a day last month.

The oil marketing companies — Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) — are therefore pushing for a substantial price increase to avoid supply restrictions.

The federal government has also taken some other steps to control the losses of OMCs.

Besides increasing prices of petroleum products, the finance ministry has reduced the customs duty on crude oil from 5 per cent to nil, and on petrol and diesel from 7.5 per cent to 2.5 per cent.

The customs duty on other petroleum products like aviation turbine fuel (ATF) and naphtha has been reduced from 10 per cent to 5 per cent.

 

 

 

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