There has been a lot of political uproar over the recent petrol price hike since a week. But there could be some talk of rolling petrol prices back partially. It may be recalled that last week, oil marketing companies announced an 11 per cent hike in petrol prices to cut down their losses of around Rs 6-8 which they incurred on selling petrol.
However, the hike didn't go well with the masses and political parties alike.To get an insight as to why was a hike announced and now why the talk on rollback, CNBC-TV18 caught up with RK Singh, chairman and managing director of BPCL who says, there is a possibility of reduction in the petrol prices. "In the last fortnight, it has come down; both the product and petrol prices have come down. Therefore, there is a possibility of reduction to the extent of about Rs 1.50 or so," he adds.
He further says, this would have been more, but the rupee depreciation has worsened the situation. "Despite that, there is possibility of reduction on the basic price to the extent of Rs 1.50. So, including the tax it could be around Rs 2 or so. We will take a call by the end of the day," he asserts.
Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee:
Q: Is it likely that you will reduce petrol prices in the next 24-48 hours because of the way the price of crude has come down? Would the international price lead you to cut prices in petrol at all?
A: Yes, indeed it will. We take last fortnight’s average international price. In the last fortnight, it has come down; both the product and petrol prices have come down. Therefore, there is a possibility of reduction to the extent of about Rs 1.50 or so. This would have been more, but the rupee depreciation has worsened the situation. Despite that, there is possibility of reduction on the basic price to the extent of Rs 1.50. So, including the tax it could be around Rs 2 or so. We will take a call by the end of the day.
Q: Is it likely that it is going to be Rs 1.50 to Rs 2 per litre?
A: Yes. We are working it out. By the end of the day, we will come out with the exact number, which will be announced tomorrow.
Q: Is this decision to cut prices about Rs 1.50 purely based on what has happened with international crude prices or have you received any informal communication from the oil ministry asking you to reconsider the quantum of the hike that was decided upon?
A: No. There is a lot of talk in the media, but to be fair to the government they have not intervened as of now. They have not told us to reduce. We are doing it as a normal process based on last fortnight’s average price.
The last revision was done based on the crude price of USD 113 per barrel and the exchange rate was taken as 53, average for 15 days. Last fortnight, the crude prices have gone down to USD 106 per barrel, I am talking about the Indian basket and the exchange rate that we took into account was around 54 point something per dollar. So that will bring down the prices to the extent of Rs 1.50. If you add the taxes, it could be around Rs 2 or so.
Q: But you are still facing very strong under recoveries on products such as diesel and LPG and kerosene at this point. Have you received any indication from the government in terms of whether you are going to get any other relief in the form of duty cuts etc? The oil minister quite categorically said that they are not willing to move on diesel prices or LPG prices, after this petrol price hike.
A: You are right. Government will have to take a call. We cannot take any decision on that. But fortunately for us the under recoveries have started coming down based on the crude prices in the international market. Today, you must have noticed that brent has come down to USD 103 per barrel and the Indian based has slipped down to USD 101 per barrel.
If the trend remains like this, there will automatically be some relief by oil companies. The under recovery for BPCL alone, which used to be around Rs 4,000 crore a month, has come down to about Rs 3,500 crore. So, if this trend continues and the rupee stabilises and we can arrest the weakening of rupee, things will look up.
Q: There was some expectation that having taken a large petrol price hike, the government would meet soon on diesel and considering some kind of formula for LPG to cut down your losses. Do you hear from New Delhi that there might be something like that in the offing in the month of June or is it like the Petroleum Minister says on the back burner for now?
A: This kind of under recovery is not sustainable. It is not good option for the government to keep on subsidising from the Budget because the inflation that will go up through that route. The fiscal deficit will be more severe than by rasing the price.
In my personal view, government will have to do something about it. Things have been politicised. So, keeping the political angle in mind they will have to take a call. But as of now there is no indication as to when and how much it will increase the price of diesel and kerosene as also LPG.
Different options are being considered like targeting the subsidy to the people who deserve it or using some kind of package. There could be combination of increase in price as also reduction in duty. So, what combination they decide finally is something which I am not aware of at the moment. But sooner or later it has to be done, keeping in mind the political scenario.
Q: What is the call on petrol that you have taken at the oil marketing companies? I imagine that you cannot raise prices because of political compulsions and you will need to consult the government. But on the way down, will you pass down any fall in price of international crude essentially work with a zero marketing margin or global parity on petrol; you make no money in selling petrol, but you try not to lose?
A: We have to make money because otherwise we cannot invest in future in infrastructure and we cannot maintain the supply line that is for sure. You have seen what is happening in the country because of increase in petrol price. Therefore, anything that affects the public the consultation with the government being a government company is inevitable. That is what we have done from time to time, but they have been supporting so far.
If we decide through the consultation process that we change the price every 15 days, there will be situation when prices go up and there maybe situation when it will come down as it is happening today. So, if we continue this cycle of fortnightly changing the price, the acceptance will increase. There will be no sudden shocks because of the increase that was done last time because for the last five-six months we had not increased the price. We are pleading with the government to let us change the prices every fortnight so that people can get the benefit reduction as also get a little dose of increase, if at all it happens.
Q: This Rs 2 cut has clearance from all the oil marketing companies (OMCs) involved and the oil ministry, I am just trying to understand that if you are asked to cut some more, what exactly is the impact for you, given the way the rupee has depreciated?
A: As of now, there is no scope for reducing the price more than Rs 1.50, the basic price. The government has not told us anything as of now. Oil companies, finance people will meet this evening. Tomorrow, they will make some announcement about the price reduction. But government side we have not heard as to how much should we reduce. Should we reduce Rs 2 or Rs 3? Those kind of indications have not come as of now. The government has not told us to reduce the price.
Q: Everybody has been complaining about the fact that this kind of differential changes in the price of petrol, diesel etc is creating a lot of distortion in the system. You are in the best position to tell us. Can you take us through the kind of consumption trends you have seen in petrol versus diesel versus furnace oil, whether there has come replacement of fuels which is going on? Are you seeing these distortions play out at your end?
A: Yes, the consumption of diesel has been going up phenomenally. So much so that the furnace oil, which is dirty fuel, is costing more than diesel at the moment. Therefore, people are changing more to diesel because diesel is a cleaner fuel, it has better calorific value. So, people are changing over to diesel because it is the cheapest product amongst all the other fuels. Therefore, there is tendency to use more and more diesel. That is very wrong trend to happen. It is not going to be good for the economy on overall basis because more diesel consumption means more underrecovery and government will have to shell out more and more money. That is not good for the economy.
But having said that, let me also tell you diesel is being used in different segments, apart from the automobiles and tractor segment, diesel is also being used in the agriculture segment. So, government will have to do some balancing act keeping the sensitivity in mind.
I cannot say what exactly they will do, but diesel consumption is going up because of the price distortion. Petrol consumption is not going the same way, but it has not gone down either. The growth in petrol is nowhere near the growth in diesel. So that is the distortion which is not good for the country, not good to the economy, not good for us also because we have to meet the demand in the market, we have to import more and more crude. We will have to spend more money and we will not be able to recovery the costs. So, of ourse oil companies will take a bigger hit, if the under recoveries continue to be at this level. If you are selling 10 tonne, tomorrow you will start selling 15 tonne, the under recoveries only will zoom.
Therefore, I think something needs to be done to discourage the use of diesel so generously and so badly in the country. A situation may come that there could be shortage. Infact shortage is being felt already in the market place. We are not able to cope up with the kind of growth that is taking place, everything is planned in advance. So, for example, we are planning a growth of 5-6-7 per cent and suddenly it goes to 15 per cent. There could be supply crisis because all of sudden we cannot make arrangements to meet the growing demand. So, the problem is there.