One stock-segment that has seen some action in the last couple of trading sessions is the OMC pack. The pick-up was due to the oil ministry’s proposal of a staggered hike in diesel prices of Re 1 per litre over a span of 10 months.
RK Singh, CMD, BPCL explains on CNBC-TV18 that the staggered hike in diesel prices bodes well for the oil and gas industry. He adds that if the government plans to increase the cap on LPG cylinders it be supported by a corresponding increase in the price of LPG.
Below is the edited transcript of the interview on CNBC-TV18
Q: Have you discussed with the government on how a staggered hike in diesel prices of Re 1 every month will help bring under-recoveries down?
A: The proposal to raise the diesel prices in a phased manner by the government is based on the fact that the current under-recoveries are at about Rs 10 per litre. A phased hike in diesel prices spread across 2013 will ensure that the under-recovery on diesel will completely be wiped out. However this entails crude prices remaining at current levels and the rupee-dollar exchange rates staying low.
Q: Is this a government proposal or is a part of the Kelkar Committee's recommendations?
A: I understand that this is part of the Kelkar Committee's recommendations. But it is a very welcome decision.
Q: What do you think would be the timeline for the proposal to be implemented? Has the government sought any opinion from the oil marketing companies (OMCs)? Have they commenced negotiations on reimbursements to OMC or upstream companies?
A: This is just a proposal and nothing has been decided as yet. Of course, the onus is on the government to take a call and not the OMCs who do participate in the consultation process. Though I am unsure when it will be implemented, but if it happens the benefits are numerous- compensation required to be paid will come down and cash levels at oil companies will improve.
But these initiatives will only make an impact next year because the current fiscal year is almost coming to an end.
Q: By how much do you think it will help in reduction of your working capital requirement and save interest-costs?
A: The overall cash levels of OMCs will improve and thereby bring the interest cost down, but by how much it is not possible for me to quantify at the moment.
Q: Has the government raised any discussion regarding an increase in the cap on subsidised cylinders?
A: Though the government has announced such a proposal, as of now the cap continues to be at six cylinders. If the government raises the cap to 9 to that extent the under-recoveries or the subsidy-loss and the compensation will go up.
Personally I feel that if the government raises the cap from six to nine cylinders the price of the cylinder should be increased by Rs 100. Though the consumer will have to pay a little more it will not be very significant compared to the price of non-subsidised LPG cylinders.
Q: What is the situation with petrol? Are you neutral on that fuel or are you making a small profit?
A: Yes, we are making a profit but the loss incurred in the first six months still remains.
Q: What is your current level of your under-recoveries?
A: BPCL's total under-recoveries for the current fiscal year is estimated to be Rs 39,000-40,000 crore. Of this we have got received Rs 7,000 crore out of the Rs 30,000 crore released by the government for the oil and gas industry. I hope, between the government and the upstream companies, BPCL manages to receive the entire compensation by the end of the year.