State-owned oilmarketing companies are thinking of taking a leaf out of Reliance Industries' books. They are weighing the option of increasing prices of their branded motor fuels, a week after the Mukesh Ambani-controlled firm raised prices of its petrol and diesel by as much as Rs 2 a litre.
The thinking on branded fuels has been prompted by continued losses they are running up from selling fuels at government-capped prices even though international crude has been nudging $100 barrel.
"We are examining whether this approach (raising prices of branded fuels) can be applied in markets that show willingness to pay more for superior quality fuels. After all, if consumers are paying Rs 2 more for same fuels being sold by private sector firms, I am sure they will pay for our fuels as well. We are discussing in the industry and may raise prices of branded fuels as per dynamics of specific markets... but no decision has been taken yet," a top executive of a state-owned company told TOI.
Though the move is aimed at reducing some of the losses, the actual economic benefit of raising prices of branded fuel will be limited.
"We are in such a situation that every penny we can squeeze will count. For us the squeeze will further tighten if the rupee starts appreciating against the dollar," the executive said. He said the companies do not have to seek the government's permission for revising prices of branded fuels as these are not used by aam aadmi. "We can do it within the price-band which had been approved by the cabinet."
The present conversion rate — people switching from normal to branded fuel — for market leader IndianOil is about 24-25% for petrol and 16% for diesel. This means a quarter of every 100 litres of petrol sold by IndianOil consists of XTrapremium and 16 out of every 100 litres of diesel is XTramile.
But if the total sales volume of both fuels and losses being run up on in each one of them is taken into consideration, then the benefit of a higher price for premium fuels in limited markets remains small.
Consider, oilmarketers are losing Rs 3.90 a litre on petrol and Rs 6.22 on diesel. Given the annual sales volume of 10 million tonnes for petrol and 30 million tonnes for diesel, the recovery from a higher branded fuel price will be very small.
On Wednesday, petroleum secretary M S Srinivasan had said oil companies could end up running losses of over Rs 70,500 crore this fiscal if crude maintained the present price trend. At $78-80 levels and a hardening rupee, the government had earlier projected a total loss of around Rs 55,000 crore.
Cabinet had earlier approved bonds worth Rs 23,457.24 crore to oilmarketing firms, covering 42.7% of projected loss of nearly Rs 55,000 crore. Oil producers such as ONGC and OIL were to help out with 35% of the losses by way of Rs 19,227.25 crore discounts. Marketing companies were to bear the remaining losses.
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