MUMBAI - The Indian government's decision to raise the retail prices of petrol
and diesel marginally by 2 rupees (5.5 US cents) and 1 rupee a liter in
February, did little to untangle India's oil price imbroglio. The country's
consumers have to pay prices that, even subsidized, are among the highest in
Asia for the fuel yet oil companies nurse record losses that are put at US$88
million daily.
Petrol costs US$1.20 a liter in the Indian financial center of Mumbai, compared
with $0.93 in Pakistan and $1.16 in Sri Lanka. Thai consumers stump up $1.05
per liter. Yet India's oil companies lost an estimated $17.7 billion for the
fiscal year
ending this month from selling at subsidized retail prices.
India is not alone in raising the retail price of fuel. China raised fuel
prices by 10% last November, while transporters in Pakistan have threatened to
go on indefinite strike after the government raised fuel prices this month and
the Oil and Gas Regulatory Authority rejected petitions challenging the
increases for fuel and cooking gas.
The government is largely responsible for India's high prices, as the oil
ministry confessed to Parliament in March 2007. India's combined tax of 52% on
petroleum products compares with 45% in Japan; 34% in Canada, 18% in the US,
39% in Pakistan and 36% in Thailand, India's Petroleum Ministry informed
India's parliamentary upper house, the Rajya Sabha.
The government earned an estimated $34 billion in taxes in the year to March
31, 2007, from the petroleum sector before its latest price hike, the first in
20 months, and seems in no mood to ease back on the tax pedal.
The government-owned Oil and Natural Gas Corporation, Asia's largest oil
exploration company, paid $3.4 billion in taxes in the first nine months of
fiscal year 2007-08, according to the Petroleum Ministry data, compared to
$88.23 million that software giant Tata Consultancy Services paid in taxes for
the six-months period between March 31, 2007 to September 30, 2007.
India's civil aviation industry, among the sectors hardest hit by high fuel
taxes, has already complained of losses of $694 million expected for the year
ending March 31, due to taxes on aviation turbine fuel causing fuel bills to
gobble up 40 % of operating costs (see
India Inc execs set global pay pace, Asia Times Online, February 26,
2008).
The oil arithmetic means things may get even worse. India's recent price
increase was based on a global price of $77 a barrel of crude oil, while prices
recently crossed $110 a barrel, a jump of over 100% in two years. Inevitably,
India's fuel import bill shot up to $54 billion in 2006-07 from $42 billion in
2005-06.
India is hit by the double squeeze of domestic oil demand rising by an average
of 10% annually, while being dependant on imports for 75% of its oil needs.
Against domestic consumption of 146 million tons of crude oil for year 2006-07,
India internally produced a mere 34 million tons, according to the Petroleum
Ministry, against the targeted production of 35 million tons.
The import bill will continue to mount. India's passenger car market, for
instance, is expected to grow by 16% in the coming 12 months, the New
Delhi-based Society of Indian Automobile Manufacturers informed Reuters news
agency. Auto majors such as Honda Motors have termed India's car market "the
most exciting in Asia".
The Petroleum and Natural Gas ministry told Parliament that the latest retail
price increase "is actually in the nature of a restoration of retail prices to
the price level operating before February, 2007. Despite the steep increases in
international oil prices, the Government has not increased the prices of
kerosene [through the public distribution system] during the last six years."
"The fuel price hike was of course justified," Y Sahai, a director of the New
Delhi-based Petroleum Federation of India, told Asia Times Online. "India's oil
consumption is below global average and there is no oil crisis."
Oil companies though hint at crisis control if they have to continue selling
petrol, diesel, cooking gas and kerosene at below cost prices under the
government-controlled public distribution system.
India Oil Corporation (IOC), India's largest commercial enterprise, is losing
$44.6 million daily, Sunil Sethi, a general manager at IOC, told Asia Times
Online. The government subsidizes retail costs of liquefied petroleum gas (LPG)
cylinders and kerosene for household cooking needs, while imposing high taxes
that lead to oil price increases.
Yet Indian Oil, with a sales turnover of $51 billion, reported audited profits
of $1.73 billion for the year to March 31, 2007, and an unaudited $518 million
net profit for the quarter ending December 31, 2007, up from $444 million in
the same period a year earlier.
When asked to explain the anomaly between the industry losing $88 million a day
and his company's record profits, Suneel Sethi told Asia Times Online that the
profits were due to sales of products such as lubricants. "Our losses are due
to retail sales of petrol, diesel, LPG and kerosene," Sethi said. "Our profits
would have been much higher otherwise."
India's state-owned oil companies such as Indian Oil, Bharat Petroleum and
Hindustan Petroleum are selling LPG cylinders, for example, at $7.50 less than
the cost price. India needs 12 million tons of cooking gas each year and
domestic cooking gas prices are politically sensitive.
India is hoping oil producing countries such as Saudi Arabia will increase
production to bring down prices. IOC imported around 80,000 barrels of crude
oil per day in the year ending March 31, up from 55,000 barrels per day in the
preceding 12 months, driving up importing costs to $6.2 million a day from $3.4
million per day.
Adding to India's complex oil tangle, private oil refiners such as Reliance
Industries, which do not receive compensation for selling fuel at
government-fixed subsidized rates, prefer to export their products to the more
lucrative global markets, resulting in government firms having to buy from
those refiners to meet domestic demand.
Indian Oil, for instance, bought nearly a million tons of oil this fiscal year
from private company Essar Oil. That is further powering demands for
investments to increase India's domestic oil production by government-owned
majors - or for the tax man to show some mercy to the oil industry and to the
oil-dependent economy now threatened with inflation rising to a nine-month high
rate of over 5%.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
