Feb 15, 2013 08:11 PM IST | Source: CNBC-TV18

Diesel price hike will reduce losses by Rs 300 cr: BPCL

Currently, oil retaillers like Hindustan Petroleum (HPCL), Bharat Petroleum (BPCL) and Indian Oil Corp (IOC) are losing around Rs 10/litre on sale of diesel and are gradually hiking price marginally after the government allowed them to do so.

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Oil companies are likely to announce another round of diesel price hike in a day or two. Currently, oil retaillers like Hindustan Petroleum (HPCL), Bharat Petroleum (BPCL) and Indian Oil Corp (IOC) are losing around Rs 10/litre on sale of diesel and are gradually hiking price after the government allowed them to do so.

In an interview to CNBC-TV 18,  BPCL's chairman and managing director, RK Singh said, "The hike, which is likely to be announced soon, will reduce our losses by Rs 300 crore and since the hike will be marginal it will not impact consumers." Oil companies are allowed to hike diesel by 50 paise/litre in phases untill they stop incurring losses.

Meanwhile, oil companies are on an average also losing around Rs 30 on sale of kerosene and Rs 231 per cylinder of cooking gas (LPG)

According to rough estimates, OMCs under-recoveries is around Rs 400 crore each day on sale of subsidised petroleum products. In FY12, they had reported under-recoveries of around Rs 150,000 crore. However, companies get partly compensated by government and upstream companies for the same.

The government has already announced plans to eliminate diesel subsidies by 2014-15. However, experts caution that higher diesel prices are likely to raise food prices and fuel inflation. Did you read: Short BPCL, says Sudarshan Sukhani

Below is the edited transcript of his interview to CNBC-TV18.

Q: Over next few days, will there just be a petrol price hike or a hike in diesel price as well?

A: Prices of both the fuels will increase. It is the decision of the cabinet to increase the price of diesel every month price between 40 to 50 paise. Last hike in Jaunary 17. New announcement will be made in a day or two.  

Q: Another 50 paise hike in diesel and about a rupee hike in petrol should happen in the next two or three days you mean?

A: Yes.

Q: With 50 paise hike in diesel, how much relief will you get in terms of under recoveries?

A: The relief will be around Rs 300 crore this year. Every increase by 50 paise, translates to about Rs 70 crore per month. Since it was done only once, last month and in the balance period through the year we expect to gain around Rs 300 crore.

Q: There are comments from OMCs that they are not all going to do at once due to fear of being labeled as cartelisation. A you say it is a cabinet decision then why should the fear of cartelisation arise and do you have rating in mind in terms of which oil marketing company goes first and who follows and how soon?

A: It cannot be seen as cartelization because it is a cabinet decision and we are abiding it. But, some see it the other way.  It is difficult to raise the price whether you raise one day before or one day later but if there is too much of imbalance, difference between the prices of fuel at two gas stations then people will opt for the cheaper station. The Indian market, unlike European or Western market, is very price sensitive and people are not highly brand conscious.

It will be difficult to manage that kind of supply and there will be chaos in the market. So, the price by and large should be the same. There could be difference of 1 or 2 paise. But, if the difference is huge then there will be serious problem in the market place.I don't think it is cartelisation.

Q: In next two days there is a joint meeting of all oil companies to decide the date on which you move diesel prices together?

A: No. There is no need of a joint meeting. A decision has been taken by the Government of India that each company can raise the price between 40 to 50 paise. So, we will take our own decision.

Q: Just the timing aspect of it?

A: In a day or two you will come to know.

Q: You mean for sure, by Monday fuel price hike will happen. There was no final nod which needs to be taken from the government. Last year's experience on petrol where officially you had a clearance but you could not do it because of many reasons. You don't think that will happen with diesel right?

A: This year there is a very definite and clear decision about the periodicity of the hike and also the quantum of hike. This was not the case with petrol. Petrol prices went up by Rs 5-6 a litre. Now for diesel, the quantum of price increase is fixed by the GoI. There is no ambiguity and no need of any consultation.   

But, being a government company, informing the government sometimes becomes necessary. I do not find any difficult in implementing the hike in a day or two.

Q: That communication has already been done. Oil marketing companies have informed the oil ministry and they have got response as well with regards to this price hike?

A: We have two days more to go. Last time it was done on January 17, today is February 15. However, there is no difficulty to increase the price.

Q: Earlier, you were quite enthusiastic about the decision on bulk diesel sale as well. Since then, bulk diesel sales have fallen about 40 percent, has this move hit the oil marketing companies where this differential diesel pricing is making them lose out on what was suppose to be a really lucrative side of the diesel business, the bulk diesel sales?

A: Some State Transport Corporations who run their buses used to buy diesel from us in bulk as we have put up tanks and storage facilities but now they refill their fuel from retail pumps, so bulk sales have lowered and retail sales have increased.   

But about other consumers like defence, railways or industries they continue to buy from bulk depot. Transport companies have moved on to our gas stations. Whatever loss that is seen in bulk sales is shifted to retail sales.

Q: There are a few state elections coming up over the next three months more towards the end of the year. According to your assessment because of the clearness of the cabinet directive this time will there be or could there be an interference to your ability to raise diesel prices because of these factors and make it an ad-hoc decision where you are able to pass it through on certain months but not every month or do you think this time is different because of the way it has been communicated?

A: I can't read the mind of the government. Government's interference cannot be ruled out as they have their own compulsions and we being a government entity we have to adhere to their guideline. As of now, there is clarity but no one can predict tomorrow.

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