OREANDA-NEWS. June 5, 2012. It is noted that a false impression is being created in some sections that the Oil Marketing Companies (OMCs) have recorded huge profits in 2011-12. On the contrary, the OMCs  have been incurring huge losses. The companies incurred losses due to sale of three products, namely  Diesel, Domestic LPG and PDS Kerosene at highly subsidized prices. It is only after the assistance of Rs. 83,500 crore from the Government and Rs. 55,000 crore from the upstream oil companies ( ONGC, OIL and GAIL),  totaling Rs.1,38,500 crore, the three Public Sector OMCs could declare nominal profits. Had this assistance not been given, the three OMCs would have reported a combined loss of Rs. 1,32,000 crore.

 It is worthwhile to mention that the three OMCs together had a combined turnover of Rs. 8,33,000 crore during 2011-12. Against this, they had declared a combined profit of mere Rs. 6177 core, which is only 0.7% of their turnover. This level of  profit is not adequate for OMCs to enable them to incur huge expenditure on continuous modernization, making available environmentally compliant fuels, laying of pipelines, enhancing  storage, and development of other infrastructure . It is important to note that the OMCs are enabled to announce at least nominal profits for maintaining their blue chip status and credit ratings at the global level.

Because of the highly subsidized sale of  Diesel, Domestic LPG and PDS Kerosene, the OMCs are under huge financial strain. Their combined borrowings have gone up from Rs.97,000 crore in March 2011 to a whopping amount of Rs.1,28,000 crore in March 2012 . Similarly, their interest burden has gone up from Rs. 4,700 crore in 2010-11 to Rs. 9,500 crore in 2011-12. If the government and upstream assistance was not made available to the OMCs, to make good their losses, they would not have been in a position to raise necessary finance to purchase crude from the international market and maintain uninterrupted supply of petroleum products in the country.

Although petrol has been a deregulated product since 26.6.2010, the OMCs have incurred losses of Rs. 2,300 crore in 2010-11 and Rs. 4,900 crore in 2011-12 and Rs. 2,300 crore in the current financial year (till 23rd May, 2012). Because of the inability of the OMCs to increase the price of petrol for long time, the situation became such that the correction in the price of petrol was absolutely unavoidable.

It may  be noted that the average price of crude oil was only USD 85/bbl in 2010-11  which went up to USD 112/bbl in 2011-12, an increase of 32%. It is pertinent to mention that the cost of crude oil and products imported / bought from other companies constitutes about 91-93% of the total cost incurred by the OMCs. Therefore, the propaganda that the OMCs are incurring high administrative expenses is unfounded.

Apart from the above, the value of rupee has depreciated from Rs. 46 per USD in Sept 2011 to Rs 54.5 per USD in May 2012. The double disadvantage of increase in oil prices and  sharp rupee depreciation have affected the oil sector in India on an unprecedented scale.  Both the consumers and commentators are requested to understand the special difficulty the country is facing at present.