Petrol price hike – oil retailers’ logic fails to convince

June 5, 2012

India’s state-run oil marketing companies launched a media blitzkrieg on Tuesday to justify a recent price hike in petrol prices and came out strongly against allegations of profiteering at the consumers’ expense.

Their logic, however, failed to answer why, while being entirely dependent on state subsidy, they are still eager to reward shareholders with rich dividends.

Here is the background.

A flurry of protests swept India recently after oil retailers announced the steepest price rise in the country’s history, leading to a partial rollback.

Oil marketing companies are reeling under heavy losses, and a price rise was necessary to fund operations, oil refiners said then, but that did not prevent public outrage.

The anger was justified — a lot of Indians use petrol as the fuel for their vehicles and a steep rise in prices disturbs their budgets.

What really smarts is that Indian Oil Corp, the country’s largest refiner, posted a net profit of 126.7 billion rupees for the first three months of this year, more than triple what it earned a year ago.

“Indian Oil net profit up 224% at Rs 12,670 crore. Dei. This government is making fuels of us,” humorist Ramesh Srivats quipped on Twitter.

On Tuesday, oil-marketing companies defended their move to raise petrol prices.

“A false impression is being created that the oil marketing companies have recorded huge profits in 2011-12. The fact is, the opposite is true,” Indian Oil, Bharat Petroleum and Hindustan Petroleum said in a joint statement in newspapers on Tuesday.

Which is true then — are the companies really making huge profits or is it not the case?

The companies would have lost 131.6 billion rupees on the sale of diesel, domestic liquefied petroleum gas and kerosene — which are used by the common man and in public transport — had the government and upstream oil companies not provided assistance of 138.5 billion rupees, the statement said.

A weakening rupee has not helped their case either.

Every one rupee fall in the value of the Indian currency against the dollar requires an increase of 0.77 rupees/litre in the retail price of gasoline, while every dollar decline in delivered prices of Singapore gasoline means prices need to go up by 0.34 rupees.

And the government assistance these oil refiners talk about is taxpayers’ money. Any rise in fuel prices will decrease the indirect burden on taxpayers.

But here’s the rub — Indian Oil alone paid out 23.5 billion rupees in dividends for the year ended in March. Companies pay dividends to shareholders only when they make money, or rather enough money after keeping aside funds for future operations.

The government does not own 100 percent of these companies. For example, the government directly owns 51.11 percent of Hindustan Petroleum, while Life Insurance Corp of India owns 11.15 percent.

That essentially means that a part of the money that comes from the so-called government assistance, or taxpayers’ money, goes to public shareholders in the form of dividends, while these companies claim to be making huge losses.

There sure seems to be a disconnect between what these companies claim and reality.

One comment

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As the saying goes ‘old habits die hard’, man is increasingly tuned to hopping onto anything moving on four-legs (including four-wheeler).

It’s time he had one deep look round his ever expanding waistline and started walking on two feet. I should wish he had evolved quickly back to his primate days so that he never wasted his life savings on a drop of highly combustible oil from the Middle East. Price rise would not occupy half the news in the world. Period.

Posted by maGiK | Report as abusive