Indian oil cos making a loss

By Katya Naidu, CNBC-TV18

The Finance Ministry on May 13 agreed to take up half of the losses that oil marketing companies make through oil bonds. However, these oil bonds may be too little too late.

Crude oil prices are hovering over USD 120 per barrel. But in India, fuel prices are controlled and benchmarked against crude at USD 55 a barrel.

Because of this, the total losses that the three oil marketing companies incurred in 2007-08, accounts to Rs 77,000 crore. The government has issued total oil bonds worth Rs 35,300 crore this fiscal.

But industry insiders say that even these oil bonds are of not much help.

They say that for every Rs 100 that oil marketing companies receive in the form of oil bonds in paper, Rs 51 is lost as a part of dividend alongwith dividend distribution tax and other corporate taxes. After deductions, Rs 49 is left with the company.

Again, oil bonds are sold at a 6-8% discount. All this added up, Rs 40 is what an oil marketing company makes out of every Rs 100 worth of oil bonds.

There are other measures too that the Petroleum Ministry is considering, like a cut in excise duty and customs duty for crude oil imports. But these measures will only marginally reduce the losses that these companies make. So, for a complete recovery from losses, fuel price hike is what these companies need.

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