Oil companies may deregulate diesel prices by Diwali
The government raised diesel prices by 50 paise on Friday and under-recoveries – the price differential between cost and selling price on every litre of diesel sold is now Rs 1.33.
Diesel prices were first deregulated by the NDA government almost a decade but remained on paper as a result of political forces. The UPA-II government decided on small monthly hikes of 50 paise per litre in 2013 until the under-recoveries are fully wiped out.
A top official with Indian Oil is quoted as saying, “Diesel is now sold at a loss of Rs 1.33 per litre. If the rupee strengthens a bit and international crude oil price softens a bit, the marginal losses on diesel sales will be fully wiped out.”
Total under-recoveries for the financial year 2014-15 is projected to be at least 65% less than last year’s figure. The last time state-owned oil marketing and exploration companies, (OMC’s) reported under-recoveries of less than Rs 1 lakh crore was in 2010.
Falling under-recoveries have far-reaching implications on the finances of OMC’s. It also provides a level-playing field to the private sector oil retailers to once again scale up operations and increase competition.
Declining under-recoveries have strong positive implications on the finances of OMC’s and is already reflected in their stock prices. The prices of HPCL and BPCL have gained 77% and 70% respectively year to date. The prices of upstream oil firms are also on the rise with ONGC up 34% this year and Oil India has risen 17%.
Source: economictimes
