Oil cos cheer Kirit Parikh report, await implementation

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Oil cos cheer Kirit Parikh report, await implementation

The report suggested, among other things, complete deregulation of petrol and diesel prices. It also recommended raising LPG rates by Rs 100 per cylinder and kerosene by Rs 6 per litre.

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The Kirit Parikh committee submitted its much-awaited report to the Oil Ministry on Wednesday. The committee was appointed by the Prime Minister-appointed to submit a report on the contentious issue of pricing of petroleum products in India. The report suggested, among other things, complete deregulation of petrol and diesel prices. It also recommended raising LPG rates by Rs 100 per cylinder and kerosene by Rs 6 per litre.

Oil Minister Murli Deora said the government would consider the proposal and the report would be submitted to the cabinet in a week.

India has for long, lived with regulated fuel prices where the government sets retail prices of petrol, diesel, cooking gas and kerosene to help control inflation and protect consumers, particularly the poor, from sharp fluctuations in energy prices. This policy however, hurts the margins of oil companies and adds to the government's fiscal deficit.

The recommendations of the report, if implemented, will have an impact on various groups - oil companies, both upstream and downstream whose FY10 under recoveries are seen at Rs 40,000 crore. It would ease pressure on government finances. Of course, end consumers would be hit.

Oil companies, will be a happy lot, if the report is implemented. RS Sharma, Chairman of Oil and Natural Gas Corporation (ONGC), which had accumulated losses on account of under-recoveries of Rs 11,500 crore in the first half of FY10, told CNBC-TV18 that he was content with the Parikh committee report. He said, "With higher realisations, companies will be able to invest back in exploration as the cost of offshore services is too high."

The recommendations if implemented would bring down BPCL 's burden by almost Rs 8500 crore annually, the company's Director Finance SK Joshi said in an interview to CNBC-TV18. "At today's prices the under-recovery stands at Rs 4 per litre for petrol and over Rs 2 per litre for diesel. Under-recovery in kerosene will drop to less than Rs 11, if the prices are hiked as per the recommendation." he said, adding that BPCL did not expect to share any of the marketing losses as recommendations look quite feasible.

This is not the first time that the government has sought to review petroleum pricing policy in the country. Earlier, two other committees, the Rangarajan Committee and the Chaturvedi Committee had also submitted reports which went unimplemented. However, this time around, Parekh believes that circumstances are different. "Previous panels had not witnessed volatility in crude, and the recommendations had turned redundant. This time, the government's unwillingness to implement reforms would mean willingness of higher budget allocation," he said.

Stock impact

Shares of oil companies were trading up in morning trade on the Bombay Stock exchange on Thursday, a day after a government panel recommended freeing pricing of fuels from administrative controls, a move that would improve earnings of the companies.

Shares of GAIL India jumped 3.8% while IOC was up 0.9%. Also, HPCL and BPCL surged 0.5% each, while ONGC and OIL India slumped 0.17% each.

Analysts, though, are skeptical about implementation and view the rise in oil retailer shares as a knee-jerk reaction.

"Implementation of all proposals would mean hefty price hikes," Bank of America-Merrill Lynch analysts Vidyadhar Ginde and Himanshu Bindal said.

"That appears very unlikely given the prevailing high inflation and the very poor track record especially on LPG-kerosene price hikes," they said.

(With inputs from Agencies)