Wednesday, December 29, 2010

Avoid BPCL, HPCL, IOC - Subsidizing Diesel, Cooking Gas

Our Bureau

Mumbai, Dec 28

It's a script that has gone completely haywire. Six months ago, when the Centre announced deregulation of petrol and Rs 2 a litre hike in diesel, oil companies rejoiced.

Today, diesel losses alone are projected at Rs 20,000 crore between October and end-March 2011. Cooking gas and kerosene make up the balance Rs 14,000 crore.

The trio - IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation - are losing over Rs 6 a litre on diesel, while cooking gas losses are estimated to touch Rs 400 a cylinder in a week.

The bigger problem is diesel whose consumption is on the rise. According to the market grapevine, the Centre is contemplating a hike of Rs 2 a litre but this will only part-alleviate the problem. By the end of the fiscal, the three refiners would be waiting for a compensation package and end up absorbing a large portion themselves.

All this does not augur well, especially when these companies are looking at investments of over Rs 60,000 crore each over the next decade. These will go towards new projects and replace the existing creaky infrastructure. This money, in turn, can only be generated once complete fuel price deregulation becomes a reality.

Logically, cars and sport-utility vehicles need to pay the actual price of diesel while trucks and non-automotive users in farms and mines need the subsidy.

Dual pricing is, however, easier said than done because it will only spawn corruption at the retail end.

Source : BusinessLIne.in