Disagreeing with the Finance Ministry's suggestion to cut subsidises by changing fuel pricing norm, Petroleum Minister M Veerappa Moily on Wednesday said that not compensating oil PSUs for their losses will put question mark on their survival.
The Finance Ministry wants petrol and diesel to be priced at a rate they can get in export market, rather than current practice of pricing the fuels after adding transportation and customs duty to the international price.
“From 2005-06, the oil marketing companies have not been adding any margin on crude oil or on petroleum products. What is import price plus transportation and taxes is all that is there in the selling price,” he told reporters after meeting the heads of three oil marketing companies (OMCs) namely Indian Oil Corp (IOC), Hindustan Petroleum Corp ltd (HPCl) and Bharat Petroleum Corp ltd (BPCl).
He had called a meeting of the three OMCs to discuss the recommendations of the Rangarajan Committee related to fuel pricing norms.
Moily said the three OMCs, IOC, BPCl and HPCl, are together projected to end the fiscal with a revenue loss of Rs1,63,000 crore in current fiscal. Of this, the Finance Ministry wants to shave off Rs 17,000 crore by changing methodology to export parity pricing (EPP).
“If you decrease their compensation by Rs17,000 crore, where will they get money for expansion and modernisation of refineries,” Moily asked.
Citing example of China which has been expanding refineries at a massive scale, he said oil firms need $ 80 billion to modernise and expand old and obsolete units.
The Government compensates most of the revenue loss that the OMCs incur on selling diesel, domestic lPG and kerosene at controlled rates which are way below the cost.
“Where do we get the money if the actual losses are not compensated. They cannot expand or modernise refineries... It is a hand-to-mouth situation for oil companies, they earn in the morning and by evening spend all the money. There is no surplus generated,” he said.
Moily said Finance Minister P Chidambaram has been pitching for more investments to revive the slagging economy. “But if there is no money, where can the investments come from.”
“I can understand that in the process of consolidation of finance, reducing the fiscal deficit (is important). But is there are no expansions, no investments, this is not going to add up to fiscal consolidation.
Merely deducting under recoveries is not going to improve the situation,” he said.
The Minister said he will shortly meet Chidambaram to discuss the auto fuel pricing as the very future of oil companies was at stake.
Earlier there was a move to set up another high level committee to study the suggestions of Rangarajan Committee, however Prime Minister Manmohan Singh shot down the proposal and asked both Chidambaram and Moily to sit down and discuss the contentious recommendations.