GOVT MAY NOT BUR­DEN OMCs FUR­THER

The mar­ket cap­i­tal­i­sa­tion of six large oil com­pa­nies has falled by `1.2 lakh cr

Financial Chronicle - - FRONT PAGE - FC BUREAU

A top fi­nance min­istry of­fi­cial on Thurs­day said the gov­ern­ment ask­ing oil PSUs to sub­sidise petrol and diesel prices by Re 1 per litre was a one-time thing.

AL­LAY­ING con­cerns about the re­turn of fuel sub­sidy regime, a top fi­nance min­istry of­fi­cial on Thurs­day said the gov­ern­ment ask­ing oil PSUs to sub­sidise petrol and diesel prices by Re 1 per litre was a one-time thing and it does not in­tend to ask them to do it again. While oil mar­ket­ing com­pa­nies will con­tinue to en­joy mar­ket­ing free­dom, up­stream oil pro­duc­ers like ONGC would not be asked to share fuel sub­sidy bur­den, he said.

Just last week, the gov­ern­ment had cut ex­cise duty on petrol and diesel by Rs 1.50 per litre and asked state-owned oil mar­ket­ing com­pa­nies (OMCs) to sub­sidise the two fu­els by an­other Re 1 a litre. But most of the Rs 2.50 per litre re­duc­tion in rates ef­fected from Oc­to­ber 5 has been lost in in­creases in sell­ing prices on sub­se­quent days, giv­ing rise to the sus­pi­cion that the gov­ern­ment may again ask OMCs to sub­sidise fuel. “The Re 1 ab­sorp­tion by OMCs in their pric­ing was a one-time thing,” the of­fi­cial said.

The gov­ern­ment, he said, has no in­ten­tion of ask­ing them to do that again. Fol­low­ing the com­ments, shares of OMCs surged by as much as 19 per cent in­tra-day, de­fy­ing the broader mar­ket trends. Shares of HPCL surged 19 per cent to hit a high of Rs 215.40, BPCL jumped 7 per cent to Rs 284.80 and IOC gained nearly 8 per cent to Rs 134 in in­tra-day trade. The bench­mark BSE Sensex fell 759.74 points to close at 34,001.

The cut in ex­cise duty and OMCs ab­sorb­ing some prices had led to a drop in the price of petrol from a record high of Rs 84 per litre to Rs 81.50 in Delhi and that of diesel from an all-time high of Rs 75.45 to Rs 72.95 a litre on Oc­to­ber 5. But rate hikes on sub­se­quent days have pushed prices up.

Petrol has risen by 86 paise per litre since then and diesel by Rs 1.67, negat­ing the en­tire ex­cise duty re­duc­tion in less than a week. Petrol price in Delhi Thurs­day stood at Rs 82.36 per cent while diesel was priced at Rs 74.62.

The of­fi­cial said the gov­ern­ment is also not look­ing at bring­ing back the sub­sidy shar­ing mech­a­nism where up­stream firms like ONGC sub­sidised cook­ing fu­els LPG and kerosene by giv­ing dis­counts on crude oil they sold to re­fin­ers. Oil and Nat­u­ral Gas Cor­po­ra­tion (ONGC) shares surged to Rs 159.60 dur­ing in­tra-day trade on the BSE be­fore end­ing at Rs 152.90, up 2.86 per cent. Oil pro­duc­ers ONGC and Oil In­dia had till June 2015 made good as much as 40 per cent of the un­der-re­cov­er­ies or sub­sidy aris­ing out of sell­ing fuel at be­low mar­ket price.

Ac­cord­ing to Moody’s In­vestors Ser­vice, share prices of state-owned oil com­pa­nies have de­clined around 20 per cent on aver­age since the gov­ern­ment on Oc­to­ber 4 an­nounced a re­duc­tion in the coun­try’s fuel prices.

The ag­gre­gate mar­ket cap­i­tal­i­sa­tion of the six largest listed gov­ern­ment owned/linked oil com­pa­nies had fallen by Rs 1.2 lakh crore since then, it said. “The share price de­cline is credit neg­a­tive for the oil com­pa­nies be­cause of the high level of crossshare­hold­ings in one an­other. The mar­ket val­ues of their re­spec­tive in­vest­ments have de­clined, re­duc­ing their fi­nan­cial flex­i­bil­ity,” it said.

Shares of HPCL closed up 14.70 per cent at Rs 207.15. BPCL was up 5.11 per cent at Rs 278.65 and IOC ended 5.39 per cent higher at Rs 131 on the BSE.

Mean­while, JET fuel or ATF prices were on Thurs­day cut by 2.6 per cent fol­low­ing the gov­ern­ment de­ci­sion to lower ex­cise duty on the fuel. Avi­a­tion tur­bine fuel (ATF) is now cheaper than petrol and diesel.

ATF in Delhi was cut by Rs 1,962 per kilo­litre (kl), or 2.6 per cent, to Rs 72,605 per kl (Rs 72.6 per litre), ac­cord­ing to a no­ti­fi­ca­tion is­sued by sta­te­owned oil firms. It costs Rs 72,225 per kl in Mum­bai, down from Rs 74,177.

Even at the re­duced price, ATF is at its high­est level since March 2014.

The gov­ern­ment had on Wed­nes­day cut ex­cise duty on jet fuel to 11 per cent from 14 per cent pre­vi­ously to give re­lief to the avi­a­tion in­dus­try that has been in re­cent weeks hit hard by ris­ing fuel prices and plum­met­ing ru­pee. The move came af­ter jet fuel prices this month hit their high­est level since Jan­uary 2014. Rates had risen by 9.5 per cent since July, and over 58.6 per cent since July last year. While the ATF has been cheaper than petrol be­fore, the fuel used in aero­planes is cheaper than even diesel now.

Petrol in Delhi costs Rs 82.36 per cent and diesel is priced at Rs 74.62.

Just last week, the gov­ern­ment had cut ex­cise duty on petrol and diesel by Rs 1.50 per litre and asked state-owned oil firms to sub­sidise the fuel by an­other Re 1 a litre. That step was matched by BJP-ruled states cut­ting lo­cal sales tax or VAT by an equal pro­por­tion to give cus­tomers hit by high auto fuel prices a re­lief of about Rs 5 per litre.

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