News » National

Updated: June 12, 2012 16:07 IST

We are not making profits, insist oil firms

Special Correspondent
Comment (19)   ·   print   ·   T  T  
A file photo of an Indian Oil outlet in Chennai. IOC and two other state-owned oil marketing companies on Sunday issued a statement to counter the “false impression” of having made huge profits.
The Hindu A file photo of an Indian Oil outlet in Chennai. IOC and two other state-owned oil marketing companies on Sunday issued a statement to counter the “false impression” of having made huge profits.

Dismissing the “false impression” that they are hiking petrol prices despite having recorded huge profits, the heads of three public sector oil firms have pointed out that without a combined bailout package of Rs. 1,38,500 crore, they would have posted whopping losses in the last financial year.

In a joint statement, the chairmen and managing directors of Indian Oil, Hindustan Petroleum and Bharat Petroleum said that while they had declared nominal profits of Rs. 6,177 crore, this was only because of help from the government and the upstream oil companies ONGC, OIL and GAIL. Without the bailout package – granted so that the firms could maintain their blue chip status and global credit ratings – the trio would have been in the red to the tune of Rs. 1,32,000 crore.

The three oil firms have been under fire ever since last month's steep hike of Rs. 7.50 in petrol prices. Despite a partial rollback, politicians across the spectrum – including two Cabinet Ministers — have condemned the hike, questioning the profits posted by the oil firms.

In their statement, the CMDs insisted that the highly subsidised sale of diesel, domestic LPG and PDS kerosene has put their firms under “huge financial strain.”

With rapidly rising borrowings and a doubled interest burden, the firms “would not have been in a position to raise necessary finance to purchase crude from the international market and maintain uninterrupted supply of petroleum products in the country” without government help, they said.

The statement also dismissed the “propaganda” that the firms were incurring huge administrative expenses by pointing out that 91 to 93 per cent of their entire costs actually go towards crude oil and products bought from outside. With average crude prices rising 32 per cent from the previous year, and the rupee depreciating sharply, the petrol price hike was “absolutely unavoidable,” said the statement.

Bailout package only to maintain their blue chip status

“Highly subsidised sale of diesel, domestic LPG and PDS kerosene put our firms under huge financial strain”

More In: National | News

The comparative figures clearly show that Indian fuel is the costliest world-wide. If despite robbing the common man shamelessly the oil companies have the gumption to say they are making a loss - it just shows that there is a lot of incompetency and corruption in the management of these companies. A fair CAG audit would show how valid are the markups these companies impose on the finished petroleum products. I am sure that a lot of the costs these companies show in the refining process are covering up a very corrupt management and a very incompetent work force. To quote a fellow reader's comment - Every barrel of crude which is 159 liter of CRUDE, provides approximately 166 liter of petroleum products. The increase is called "Processing Gain" of crude. From one barrel- 159Liters of Crude- approximately - 6 lit LPG,--- 7 lit Naphtha ---,72 lit Petrol,---- 35 lit Diesel,---- 15 lit ATF/ kerosene, --- 6 lit Heavy Fuel Oil,--- and 25 lit Other products (petrochemical, asphalt, bitumen, tar, etc.)are obtained. So if 166 Lit products cost 90 Dollars @ Rs 56/-, each liter of all ABOVE products should cost Rs 30.36 each only. -------------------------------- WILL THE "OIL MINISTER" reveal following. 1--- How much is the REFINING MARGIN - (profit) - the Indian PSU Oil Refineries keep?? (RIL takes 8.7$ per barrel which is Rs 2.93 per liter or Rs 486 per barrel) 2-- What is the profit margin of all the above products when sold by Oil Companies like HPCL, BPCL etc ?? 3-- How much is the cross subsidy contributing to cost of Petrol?? 4-- Is the excess recovery from Petrol utilized “solely & only” for subsidizing LPG, Kerosene & Diesel??? 5-- Other than Petrol, is there any product derivative of Petroleum like ATF, Naphta, Heavy Fuel Oil, Petrochemicals, Bitumen etc etc "sold at higher than production cost" to contribute to the kitty for subsidy LPG, Kerosene oil & Diesel???? 6. Why is ATF which is used for planes & thus RICH man fuel not sold at Rs 64.95 per liter in Delhi & Rs 66.93 in Mumbai while petrol is more expensive??? 7. Why is TAX on SUVs of RICH people not imposed with additional TAX as they run on subsidized Diesel??? 8-- What is the cost being accounted for the "domestic production of CRUDE which is about 25 Million Metric Tonnes" forming 20% Indian CRUDE demand.? 9-- How much has been profit generated by all OIL SECTOR PSUs like ONGC, PSU REFINERIES & PSU OIL DISTRIBUTION Companies like HPCL, BPCL etc for the year 2011-12?? Cannot agree more and echoes my comments on a similar topic. Also factor in, 1. India has an agreement with Iran to pay in INR for crude import from Iran which is about 20-25% of the total import. 2. Crude futures are booked months in advance in the international market where as govt. & the indian OMCs always site the very recent crude price / currency fluctuations. 3. ONGC videsh is a oil producing company and has been doing very well especially in the African oil producing countries. I assume India gets a better pricing from ONGC Videsh while importing oil from them? 4. Why central and state govt tax on oil products are based on % and not fixed figures? As I understand, every increase in petrol prices also increases the central and state govt tax kitties! 5. Why private diesel car owners should pay the subsidised diesel prices and petrol car owners will take up the additional burden? Why not subsidise diesel prices only for the public transportation vehicles and increase the price of diesel for private diesel car owners.

from:  suryakant
Posted on: Jun 5, 2012 at 10:19 IST

Can the CMD's explain how much they and their employees take home in salary + other benefits + perks?
How much they spend on advertisements, sponsorships, and endorsing celebrities?
How much non-essential staff they hire?
Do any other loss making companies / companies have such luxury.
If they are running at a loss, they should cut flab and install austerity measures. However what we find is oil PSUs living life king size.

from:  N Naseer
Posted on: Jun 4, 2012 at 23:00 IST

Thanks for sharing this information. there is so much that a government can do. the problem is with rupee depreciating against usd which is causing increase in petrol prices as well. also the subsidy given towards diesel need to be compensated some where. you cant argue against it because if you increase diesel price then it adversly affect price of all products.

from:  praba
Posted on: Jun 4, 2012 at 01:35 IST

Your correspondent Shalini singh is the right person to go through the accounts of these oil companies to find out 1.The average price at which the crude is imported during the year, 2.the average price of re.3.The expenditures involved on management staff on various heads, many foreign trips are undertaken by them,5.whether any of the officials/ministers from the ministry's travel in India/abroad were met by the oil marketing companies 6.what are all the actions taken to reduce the expenditures and to improve the recovery ratio of petrol,diesel etc from the crude.

from:  G.Ramachandran
Posted on: Jun 4, 2012 at 00:37 IST

Simple mathematics :

1 barrel = 164lt
Price of 1 barrel = 112 US dollars
Price of 1 barrel in INR = 6104 Rs.
Cost of 1 ltr oil = 37.22 INR.

Cost of petrol in UP is around 78 INR. So the complex system of taxes makes the price double when it reaches the consumer. Would it not be better if the government looks into it's tax structure on oil before making the ridiculous hikes?

from:  Vibhore
Posted on: Jun 4, 2012 at 00:35 IST

One thing strikes very strange to me.Year after year,especially
2004,the Government bails out the OMCs with sums like Rs 1,36,000
CRORES....The OMcs are allowed to import Crude,whatever the price.Then
the GOI complains HIGH Fiscal Deficit,CAD bad BOP etc...very strange
indeed.The so called 'under-recoveries", were started only in 2004,and
from 2005 onwards, the OMCs started reporting LOSSES.Very strange
indeed.Please google for:-
1.M M Singh the economic hitman
2.What are under-recoveries.

from:  Sadasivan
Posted on: Jun 4, 2012 at 00:01 IST

Although Indian Refineries are not using Brent Crude,let us assume that their Feed Cost is $2.66=Rs149.33/gallon or Rs29.86/litres. Refineries all over the world were making money when Oil roce was $20/bbl in 2001 and when $32/bbl in March of 2009. Now giving 100% mark up on feed cost,if the Refineries in India cannot make money at Rs.59.73/litre, it is too bad. Indian people and the Government need a full disclosures of all the cost of Petroleum Industry in India. Reference pricing and makebelieve accounting would not do, Let people have true actual costs of prroduction of all these refineries.and see what is wrong with this picture. If India farmers need subsidies for speculative energy prices, let there be a fair tax system in India to collect needed reveneues. Financial Commodity Trasaction tax will be a place to start.

from:  Ganesh C. Bhuyan
Posted on: Jun 3, 2012 at 23:54 IST

ok, both arguments are good enough.
As a layman one does not understand the mechanism for oil pricing as
it depend on international oil price and dollar rupee exchange rate.
What about the efficiency criteria in increasing the price ?
If refinaries does not run on some efficiency they should first meet
the minimum criteria, like electricity board have to reduce their
transmission losses before hiking the per unit rate.
The point regarding huge perks enjoyed by employees, if u make loss
due to inefficiency why u give huge incentives ?
Are these factors taken into consideration before burdening the common
man ?

from:  manish sindha
Posted on: Jun 3, 2012 at 23:40 IST

What are all the taxes collected by different agencies had to be spelled out, to really
understand how much are the real subsides and how much of it is collected back in
the form of different taxes by the central and state governments. If the government
collects all the taxes revenues properly in the country and effectively increase the tax
base in our country, then they may not need to charge so much taxes on oil base

from:  K Basi Reddy
Posted on: Jun 3, 2012 at 23:11 IST

Oil Marketing company started piching for increasing price for
diesel,kerosene and LPG.These three items are public good.So these
items cannot be seen in profit or loss angle of OMC. Interest of whole
country lies on these products,so impact on economy and especially on
poor people should be given clear priority while decide on the fate of
the price of these products.Unfortunately all three companies
maintaining silence over the allegation of high salary fixed for their
employees and wasteful expenditure incurred.It is the Government's
obligation to pay for subsidy and if Government is not paying for it,
How will oil companies pass unrecovered amount on common people.If an
employee of OMG takes loan and fails to payback.then Bank asks OMG to
pay the money to bank saying we gave him loan bcoz of the impression
he is working in your firm...Will OMG pay unpaid loan amount to
Bank??? if we go by OMG's logic of passing unrecovered to people,then
same logic will apply for unrecovered loan.

Posted on: Jun 3, 2012 at 22:39 IST

I suggested number of times that the price of Petrol and diesel must
be constant Ie Petrol@ Rs 60 and diesel @ Rs 40 by adjusting taxes
when the crude oil price is between 80 to 120 dollars.If the price
increases the salaries starting from President Of India to all the
officers drawing more than Rs 75000(it is also on high side)Ministers
MLAs MPs of Central as well as state Governments.These people are
already enjoying the transport facility at the cost of Public.Further
taxation on multi national companies to be variable.I think many
people doesnt know that incometax has come down from about 90% in
sixties to about less than 35%.Reliance,Tatas and such big companies
voluntarily to approach Government.

from:  Kumaraswamy Reddy.Penubolu
Posted on: Jun 3, 2012 at 22:27 IST

The so-called "under-recoveries", of,slightly above, Rs 1,36,000
CRORES every year,is NOT CONVINCING.This is mammoth!A National Debate
on the so-called,"under-recoveries" is a must. The GOI and the OMCs
are suggested that they explain to the nation as to what these and how
they contribute to the losses claimed by the OMCs.Remember,"under-
recoveries" and losses claimed on its basis, were started only from
2004 when M M Singh was lucky to become PM. The hikes and decontrol of
petroleum products IS TO BENEFIT the private Players and the
MNCs.Mittal will be grinning from ear to ear and laughing all the way
to his banks.
take the following steps:-
1.Merge oil producers like ONGC,OIL etc with the refiners and
marketing Cos,IOCL,BPCL,HPCl etc.
2.Reduce Crude import at HIGH prices and start rationing petroleum

from:  Sadasivan
Posted on: Jun 3, 2012 at 22:19 IST

I would like to make a suggestion to the OMCs..Why don't they link the price of petrol to daily international price of crude like gold pricing...In that way they not only cover for losses but the public will find it easier to deal with daily price hike/reduction of few paises at most...In this way we avoid spiky rises and the prices would be truly deregulated unlike the pseudo deregulation prevalent today..

from:  utpal
Posted on: Jun 3, 2012 at 22:01 IST

All economists and the Oil Companies say about the subsidy burden of the government.Is there any justification to the fact that the Government is providing tax exemptions to various firms and I believe this amount is many times the subsidy amount.if strong measures are taken to avoid this kind of things surely more revenue can be generated.if we go in detail to the amount of taxes that goes unpaid due to the black money and things like that we can stop talking about fuel price hike.Also stopping the wastage of fuel must be stopped any way.But a common man who owns a scooter or motor cycle or a person who owns a small car can never be punished with the increasing fuel price.People with big luxury cars and with a hell lot of money can't never be compared with the latter in terms of fuel expense.A hike of 2,5 or 10 won't make a difference for the luxury people class.Also one major thing is our public transport sysstem which is never upto the mark.

from:  Arun
Posted on: Jun 3, 2012 at 21:55 IST

This is what you get when you privatize Public companies. Consider this thought experiment for a while, imagine that these companies were selling water, what then? Are we still going to be talking profit and loss? Its the height of absurdity for a Government to privatize companies that operate in the utility area. Fuel is a necessity like water, air and power. The ideology of Capitalism will always keep moving towards the 'what is my bottom line' strategy. Nehru's judicious choice of a 'Mixed Economy' model is beginning to look more and more sagacious in the light of the utter disaster that Capitalism has become in our century.

from:  Anand Richard
Posted on: Jun 3, 2012 at 21:52 IST

It is nothing but a manipulation of accounts by the oil companies to show loss.the administrative expenses will be consuming more than 50% of the income. The unreasonable perks, avoidable tours and travels by executives[ if you look into the accounts] itself will help to reduce the loss if any and increase the profits. it is only an eye wash to say that they incur more for modernisation. they can not fool the educated citizens of this country.

from:  trsubramanian
Posted on: Jun 3, 2012 at 21:30 IST

Why these companies did not raise price when Parliament was in session? What have they done to implement the austerity measures in case they are not making profits? Let us know the level of salaries and wages paid to different categories of employees and the rate of increase during last 5 years? What is the cost of processing as a percentage of the landed cost of fuel?

from:  Sharma S
Posted on: Jun 3, 2012 at 21:02 IST

what the OMCs say about all the losses are notional, based on highest order of presumptions, the so called 'ifs and buts'. Government has always been making huge grants and investments in these OMCs right from the inception stage. Service to people were the sole intention the Government always had and should continue to have. Few of the existing top rank of these companies seem to have totally forgotten this and tend to behave like a Marwari Bhania now a days.

from:  G Venkateswaran
Posted on: Jun 3, 2012 at 20:38 IST

Why Government of India is still holding the fixing of price of the oil with them instead of the oil companies themselves to fix it like other products?

from:  Balasubramanian
Posted on: Jun 3, 2012 at 20:34 IST
Show all comments
This article is closed for comments.
Please Email the Editor


Tamil Nadu

Andhra Pradesh





Recent Article in National

Four militants killed in gunbattle with security forces

Four militants were on Saturday killed in an encounter with security forces near the Line of Control (LoC) in Tangdhar sector of Jammu a... »