Indian Oil Corporation profit down 71%, stops Liquefied Petroleum Gas connections

Indian Oil Corp (IOC) on Wednesday reported a 71 per cent dip in its net profit in the first quarter as good refinery margins was not good enough to make up for the revenue loss on fuel sales.

Net profit in April-June quarter plummeted to Rs 415 crore from Rs 1,468 crore in the year-ago period, IOC chairman, Mr Sarthak Behuria, told reporters.

The company earned $16.81 for processing every barrel of crude oil, up from $10.70 per barrel last year, but it was not good enough to make up for the Rs 413 crore loss it incurred per day on sale of petrol, diesel, domestic LPG and kerosene.

Sales, however, rose to Rs 74,496 crore from Rs 52,862 crore in Q1 of 2007-08 fiscal.

The state-run oil major also reported an additional income of Rs 14,276 crore, which included Rs 13,527 crore oil bonds, which the government issued to the company to partly compensate for the losses on fuel sales.

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Economics versus Politics: Will Government slip on oil slick?

The price of petrol is up by Rs 5 and diesel is up by Rs 3. There was absolutely no alternative but to raise the price of petrol the Prime Minister said in a rare address to the nation, but the Government got it from the Right and the Left.

The Government has raised the price of fuel in an election year and predictably there has been a political furore. The Left has said that the rise in fuel prices is suicidal and has announced a week of protests. Meanwhile, the BJP has called the price hike an exercise in economic terrorism.

The question that was being debated on CNN-IBN's Face The Nation was - Fuel price hike: Is good economics bad politics?

To try and answer the question on the panel of experts were Deputy Chairman Planning Commission, Government of India Montek Singh Ahluwalia, senior CPI-M leader Dipankar Mukherjee, BJP's Economic Cell Convenor Jagdish Shettigar and South Asia Bureau Chief, Upstream, Narendra Taneja. The debate was moderated by Sagarika Ghose.

At the beginning of the show, 71 per cent viewers agreed that good economics was indeed bad politics while 29 per cent disagreed.

UPA's Crude Bomb

The big question that everyone seems to asking is why was this hike not brought about in 2007, when inflation was low. To this Montek Singh Ahluwalia said, "The decision on timing of a hike is always a matter of judgement. Quite frankly, oil prices have risen sharply, but about a year ago, the Government was not exactly sure how far the prices would rise and how long would they stay high. I think that it is only in recent months and weeks it's become clear that the oil prices are not going to turn down and I think that an adjustment in oil prices therefore became unavoidable."

He added that the Government knew it was an unpopular measure - as the Prime Minister pointed out in his televised address to the nation. He said that it was a difficult decision.

"In my view, it is also a responsible decision and I don't think that a responsible Government could have done anything else. And I hope that responsible politicians would try and look at this hike in a sensible and realistic way, posing to the people the question 'what are the choices did the Government have'," he stated.

However, Dipankar Mukherjee disagreed with the fact that the Government did not have any other choice. He said that there were many options presented before the Government in the last three years.

"I don't think that this price rise is unavoidable. There werbne other options like the cess that we are collecting from ONGC and OIl India worth Rs 7,500 crore per year is under the Oil Ministry Development Act but is not being used for the Petroleum sector. It is being used for revenue management. we feel that this cess should be given back to the Petroleum sector," he said.

He also stated that the West Bengal Government has reduced the sales tax on fuel. "I don't understand that if this is possible for one state, why cannot the Central Government - which is getting a revenue of Rs 1,12,000 crore in this year as compared to Rs 70,000 crore in 2001-2002 from the Petroleum sector - can cut excise duties further so that there is no need to hike the prices and pass the burden on to the people."

He added that the three public sector oil marketing companies are having some problems, but no one knows what the actual losses are for the figures are not available. He said that there are private refineries which have earned profits as high as Rs 5,000 crore in 2005-2006.

"In oil refining we are self reliant. The prices of petroleum products which are being refined in the country - we are producing 140 million tonnes, last year we exported 26 million tonnes - should not be pegged on the international prices which are not based on domestic refining and production costs.

Government fuels another fire, now set to ration Liquefied Petroleum Gas

After weeks of deliberations, the Cabinet Committee on Political Affairs met on Wednesday to to consider a hike in fuel prices and announce its decision.

For the Government, already reeling under losses in state elections, it is a difficult decision to make.

Oil companies have been suffering huge losses, to the tune of Rs 225,000 crores per year.

The Government is set to make an announcement at noon on the fuel price hike.

Wednesday night will also see Prime Minister Manmohan Singh addressing the nation to explain the reasons for the hike, a second since the year began.

The proposed hike may be to the tune of Rs 3 per litre for Petrol and Rs 2 per litre for Diesel.

The Government has three options to choose from:

• Hiking diesel and petrol prices by about Rs 2 to 5 rupees per litre, along with a marginal cut in customs duty on crude.
• Hiking the prices by Rs 1 to 3 and cut customs duty on crude by five per cent.
• Raising petrol prices alone by Rs 3 per litre along with cuts in customs duties on crude and petrol and lowering of excise duty on certain petroleum products.

For liquefied petroleum gas (LPG), however, the Government’s plans are different.

A new distribution process for LPG has been announced – eight gas cylinders per year at current year extra to cost double.

Even though the prime minister says he does not favour going back to the era of blind market controls,

Petroleum Minister Murli Deora has indicated that there will now be a quota on LPG cylinders, this despite the PM having earlier stated that he does not favour returning to an era of blind market controls.

Deora proposed that people who have LPG connections would get only 8 cylinders per year at the current rate, no matter the size of the household. If extra cylinders are required, one would have to pay double the rate.

The move will, in all probability, lead to huge opposition across the country and may perhaps sound the death knell of the UPA Government.

While the Government is gearing up to take this critical decision, international crude oil prices have continue to fall after touching the peak of above $135 a barrel on May 22.

Crude oil futures dipped below $127 a barrel on Tuesday, despite worries that supplies are barely meeting growing global demand.

However, prices did edge higher on Monday on concerns about heating oil supplies after OPEC official said there is no need for the cartel to pump more oil.

Though typically a see-saw battle, some have seen this an opportunity to buy as global demands remain tight and supply remains restrained.