Oil minister warns of Indian refining losses

Weakening of the Indian rupee against the US dollar is magnifying losses on product sales incurred by India’s state-owned refiners and marketers under price controls.

Jaipal Reddy, minister for petroleum and natural gas, expressed concern for “oil marketing companies” (OMCs) in a government meeting in Mumbai Oct. 10.

India caps retail prices of diesel, “public distribution system” kerosine, and domestic LPG, creating what the government calls “under recoveries” by fuel manufacturers and suppliers.

Since the beginning of September, Reddy said, the rupee-dollar exchange rate has increased to 49:1 from 46:1.

“Weakening by every 1 rupee impacts the cost of diesel, PDS kerosine, and domestic LPG by 8,000 crore rupees [$1.6 billion] per annum,” he said.

In response to recent increases in prices of imported crude oil, the government eliminated the customs duty on crude oil and cut duties on products by 5%. It also trimmed the excise duty on diesel.

Still, oil marketing companies are sustaining “under recoveries” of $54 million/day on product sales, the minister said.

“OMCs are forced to borrow even for their working capital requirements,” he said. “If their financial health deteriorates on account of under recoveries, their ability to discharge assigned task of supplying the entire country with petroleum products would suffer.”

India has 21 refineries with capacity totaling 3.87 million b/d, 17 of them operated as public-sector enterprises.