Who 'really' gained from petrol deregulation?

Riken Mehta

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Petrol prices were deregulated by the government on June 25, 2010 in an attempt to cut down the fuel subsidies and reduce the burden on upstream and downstream companies.  Crude import bill forms a major part of the CAD and fewer subsidies would also allow the government to spend more thereby propelling the growth of the economy. However, nothing has worked as per the UPA government’s expectation.

The burden of upstream companies like ONGC, Oil India and Gail have doubled so far since deregulation on higher under-recoveries and would soon become cash-strapped if things remain constant.

Downstream companies have not been able to pass on the complete hike of petrol and diesel to consumers despite diesel being deregulated in January this year by the government. Also, delay in receiving fuel subsidies led to heavy borrowing by OMCs to meet their working capital requirements. Barring BPCL which has exploration assets, these companies have not rewarded their shareholders who invested on hopes of turnaround since deregulation.

Brent crude has surged 33 percent while rupee has depreciated 34 percent since petrol deregulation. The consumers are now shelling out 50 percent more for petrol and diesel. Sales of auto companies also took a hit as the price differential between petrol and diesel has come down significantly. And it can’t get better with the timing of IOC FPO thereby forcing the government to give subsidies in the middle of the year to repair oil marketing company’s balance sheet.

* From 25-Jun-2010 to 31-Dec-2010

Particulars	On 25-Jun-2010	2010*	CY2011	CY2012	CY2013	Since 25-Jun-10
Avg Petrol (Rs/ltr)	52.2	56.51	69.52	74.6	75.97	50%
Avg Diesel (Rs/ltr)	39.88	47.77	44.98	47.84	56.56	50%
Avg Brent Crude (USD/bbl)	78.12	82.04	110.91	111.68	108.31	33%
Avg USDINR rate	46.54	45.7	46.67	53.49	57.99	-34%
Under Recovery (Rs Cr)		78190 (FY11)	1,38,541 (FY12)	1,61,029 (FY13)	60907 (H1FY14)	Over 4 lakh crore
Upstream burden		30297 (FY11)	55000 (FY12)	60000 (FY13)
BPCL	310.68	6%	-27%	49%	0%	15%
HPCL	401.05	-3%	-36%	15%	-26%	-46%
IOC	377.3	-10%	-26%	6%	-22%	-44%
ONGC	316	2%	-21%	4%	6%	-10%
Oil India	544.08	3%	-15%	-2%	0%	-14%
GAIL	482.75	6%	-25%	-7%	-4%	-29%