The Budget's oil subsidy projections of Rs 23,640 crore in 2011-12 could end up being over twice as much if crude hovers at $90 a barrel and diesel prices are not hiked, say industry sources.
For this fiscal, the subsidy is estimated at Rs 38,386 crore which includes Rs 14,000 crore from the fourth quarter of 2009-10. Of the balance Rs 24,000-odd crore, the Finance Ministry has already allocated Rs 21,000 crore to the oil refiners for the first nine months of this fiscal.
Thanks to the crude price spiral, the fourth quarter alone could see fuel losses exceed Rs 20,000 crore, of which, a third (Rs 6,500 crore) will be borne by the upstream companies.
The Finance Ministry would have to make good the balance Rs 13,500 crore of the balance to ensure that IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation do not sink into the red.
As a result, its outgo for 2010-11 will be closer to Rs 35,000 crore when total losses incurred on diesel, kerosene and cooking gas are estimated to be around Rs 75,000 crore. The upstream companies led by the Oil and Natural Gas Corporation would have chipped in with Rs 25,000 crore with the refiners absorbing the balance.
With crude expected to stay firm at $90/bbl through 2011-12, fuel losses could exceed Rs 100,000 crore. If diesel continues to play the spoilsport, its share alone would be closer to Rs 60,000 crore which means there is no option but to increase its price. IOC, BPCL and HPCL are already losing Rs 12 a litre on the fuel and its rampant consumption across sectors is burning a huge hole in their pockets.
With the spectre of inflation looming large, the Centre is not going to even dare contemplate a diesel price hike. The same holds true for cooking gas where losses are nearly Rs 300 per cylinder, though lower than Rs 366 a month ago.
“We can only hope that global crude prices crash as they did towards the end of 2008-09 after reaching a peak of $147/bbl. All of us know that the present spurt is an aberration but are equally sure that it will not settle below $85/bbl in the days to come,” an oil industry executive told Business Line . To that extent, the subsidy projections for the downstream companies next fiscal will end up exceeding Rs 50,000 crore after accounting for support from the upstream oil companies.
Cooking gas, kerosene
The good news is that the Budget has set in motion a plan for direct transfer of cash subsidy on cooking gas and kerosene. Though this is expected to kick off only in 2012-13, it is the best piece of news to the trio of IOC, HPCL and BPCL which have been the worst affected in this subsidy drama.