A Rs 3-hike in diesel won't be of much help: BPCL

Responding to a report that diesel prices may be increased by Rs 3-4 per litre shortly, state-owned Bharat Petroleum’s chairman and managing director RK Singh told CNBC-TV18 that the hike would not be of much help to oil marketing companies.

According to Singh, oil marketing companies were losing Rs 17 on every litre of diesel they sold. The loss, termed under-recovery, on selling petrol at subsidized rate was Rs 5, Singh added. Oil companies were able to almost break even on petrol a few months ago, when the price of that fuel was raised sharply. However, following a public furore, oil companies had to roll-back a part of the hike. The Press Trust of India reported Monday quoting a ministry official that a hike in petrol and diesel prices was “imminent” and that “there was no question of holding it back.” According to Singh, BPCL’s under-recovery on petrol for the quarter ended June was Rs 600 crore. But the under-recoveries on petrol and diesel are lower compared to the losses that oil marketing companies have to bear on kerosene and liquefied petroleum gas (cooking fuel). Singh pegged the under-recovery on kerosene at Rs 32 a litre and that on LPG at Rs 347 a cylinder. Singh said the company had to borrow heavily to run its regular operations because of the huge under-recoveries. He said the government was considering a proposal to cap LPG cylinders. Also read: Hike in petrol, diesel prices likely after Friday Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee. Q: Can you just start by detailing what the product-wise under-recoveries are and where they stand at this point? A: The current under-recovery on diesel, which is a major product, is around Rs 17 per litre. On kerosene, it is around Rs 32 per litre. LPG cylinder is around close to Rs 400, Rs 379 or something like that. Q: What about petrol? A: Petrol is close to Rs 5. Q: Have you heard any noise from New Delhi or are these just media reports and speculation over the last couple of days? A: I have heard only from the media. But one cannot deny that there is very urgent need for the prices to be increased because under-recoveries are mounting. I don’t know. Government will have to take a call sooner or later. Ultimately, EGoM will decide the price increase about diesel, kerosene and LPG. So, I have no idea. There is no consultation with us. It is entirely upto the government to take a call on that. Q: We have been hearing that the diesel price hike, which is being considered, is in the realm of Rs 3-3.5, but you are saying under-recovery is Rs 17. Rs 3 won’t help you much, would it? A: No, it won’t. But no government can increase the price by Rs 17. So, I think Rs 3 will be too meager an increase, but government may be trying to reduce its subsidy burden to the extent possible. But, at the same time, I can appreciate the concern, but that it will fuel inflation and things like that. So, they will have to do some kind of balancing act. You are absolutely right, Rs 3 is not at all enough. Q: Even petrol has been dragging for sometime now. Can you quantify what losses you have incurred, since global crude prices started moving up and you could not move beyond the petrol price hike that you took? In these interim weeks, what has the loss been to BPCL for petrol, for which you will not even get compensated? A: Yes, we don’t get compensated, you are right. But I can talk about the first quarter loss, which is in public domain, was around Rs 600 crore for BPCL alone. _PAGEBREAK_ Q: In the last few days, with Brent crude at USD 115 per barrel, surely your petrol losses would have been mounting everyday. A: Yes, it is. As I told you, we are losing around Rs 5 per litre. Apart from the crude, prices petrol prices are also going up, which is the basis for determining the refinery transfer price. Q: The parliament session comes to an end this week. Have the oil companies even slated a meeting for this weekend or Friday to discuss atleast the petrol price hike? A: No, not really. All of you know that petrol has been deregulated, this is a known fact. But let me confess that we cannot take a decision, unless we consult the government because it affecting the public. Government has its own compulsion. Although we are pressing for increase, hopefully something will happen after the parliament session is over. We know what is the situation, how much we are losing. Personally, I feel that increasing the price on regular interval by few paise would have been better option than accumulating it and then suddenly you increase by Rs 4-5. That is when the pinch will be felt. If we do it on a regular basis, let’s say weekly or fortnightly, I am sure there will be many occasions, when customers will stand to benefit because prices do go down at times. There will be some occasions, when it will go up by few paise. But that’s the view I hold. I have been pleading with the government, but somehow it has not happened. Q: I was asking you about LPG. In the last few discussions, was there any kind of indication from the government that they will either think of raising prices or atleast capping the number of cylinders per family? Is that likely in your eyes? A: Ofcourse they have to decide the price increase. But we have been discussing with the government and the government itself has been very active on this proposal of capping the number of cylinders to the consumers. We conducted some trial to check the working, using the UID card on a pilot basis. The experiment was successful. But the fundamental decision of capping or increasing the price, we have not been consulted. The government will have to decide. But we are ready with the software, with the package. If they do decide to cap the cylinders consumer-wise or they want to identify the BPL or whatever action plan they finally want to put in place, oil companies are ready with their package. Q: How are you managing for cash? You have not even been compensated for the first quarter losses. How are you continuing with operations in the absence of any kind of cash flow? A: The only option before us is to borrow from the market. The bigger under-recoveries are there on these four products, including petrol. The refineries sector is total deregulated. There are other products which are giving us some amount of profits. This is the way we are going ahead. We have not put any stop to any of our expenditure or the capex. Our borrowing ofcourse is remaining in the same range of Rs 24,000-25,000 crore. Whatever the compensation was announced earlier on, money is coming now. So that is keeping us going. I hope something will be done very quickly in terms of compensating us so that our day to day operations can be maintained.