Price freeze cost 3 fuel retailers $2 billion: Moody’s – Times of India


NEW DELHI: State-run fuel retailers, which control 90% of the Indian market, have lost more than $2 billion (about Rs 19,000 crore) revenue by freezing pump prices between November 5 last year and March 22, even though India’s average crude cost rose 35% during this period, Moody’s Investors Service said on Thursday.
“Based on our estimates of average sales volume between November and first three weeks of March, the state-owned refining and marketing companies (IndianOil, Bharat Petroleum and Hindustan Petroleum) together have lost around $2. 3 billion in revenue on petrol and diesel sales,” the agency said in a report.
“Based on current market prices, the oil marketing companies are currently incurring a revenue loss of around $25 (about Rs 1,900) per barrel and $24 per barrel on sale of petrol and diesel, respectively,” the agency said in a report. As assembly elections in five states loomed, the retailers froze petrol and diesel prices since November 4, the day rates came down sharply as the Centre and states slashed fuel taxes. The Indian Basket, or the mix of crude Indian refiners buy, stood at $84 per barrel on that day and has risen to $115 on Wednesday, averaging $111 in the first week of this month.
The retailers resumed the revisions on Tuesday, increasing petrol and diesel prices by 80 paise a litre on two consecutive days but paused on Thursday. The under-recovery on petrol and diesel is estimated to have risen to about Rs 20-22 as crude spiked to $139 on March 7. It is practically not possible to pass on such a heavy burden on consumers, without triggering unrest and shaking up macroeconomic parameters, starting with inflation.
The government does not want to reduce excise duty just yet as the new financial year begins. So, the companies will have to offset the under-recoveries on petrol and diesel against their refining margins and inventory gains. This is essentially a paper exercise and may still help them to post some profit.


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