Oil companies earn in millions from oil price surge and war windfall, yet befool people by showing ‘under-recovery’ as loss
Russia’s invasion of Ukraine has opened arbitrage opportunities so enticing that Reliance Industries Ltd. deferred maintenance work at the world’s biggest oil refining complex to churn out more diesel and naphtha after prices surged.
The refiner, owned by Indian billionaire Mukesh Ambani, is buying discounted cargoes of crude after self-sanctions on Russian fuels by some European Union companies pushed up margins on some oil products to three-year highs. Reliance earns about 60% of its income from oil. Its net income in the last January to March quarter rose 22% to 162 billion rupees ($2.1 billion). (Bloomberg 07-05-22) Shell said in a statement that its net profit stood at $20.1 billion. (Economic Times 06-02-22) In the year 21-22, net profit of Nayara rose 101.00% to Rs 921.00 crore. in the year ended March 2022 (Business Standard 27-05-22) Not lagging behind are the Oil marketing companies as well. Indian Oil booked a bumper profit of Rs 24, 184.10 crores in 21-22 while earning shot up to Rs 7.28 lakh crores or USD 96 billion. (Economic Times 17-05-22) Needless to mention that this phenomenal income is at the cost of the common citizens reeling under astronomical hike in retail tariff of petrol-diesel-LPG.
Yet, the private oil companies are complaining of making loss of Rs 14-18 per litre in diesel and Rs 20-25 in petrol and urging upon the government to intervene. (ABP 20-06-22) Does it not sound absurd? Yes, it is because there is a hidden deception. In fact, the ‘loss story’ is a ghost one-a kind of sleight or sorcery to befuddle people. What is being projected as loss is in fact ‘under-recovery’. Under recovery is the difference between the import parity price and the retail price of petrol, diesel, LPG and kerosene, before deregulation. Under recovery is a notional loss based on assumption and not actual loss in real terms. Let us illustrate. We know that India imports crude oil from outside and gets it refined in the country. Suppose, the sale price of 1 litre of refined oil in the international market is Rs 100. But since refining cost in India is much lower, even after keeping the same margin of profit as in the international market, the refined oil is sold at Rs 70 per litre in domestic market. But the Oil marketing companies argue that as per ‘import parity pricing principle’, they are denied opportunity to earn Rs 30 (100-70). This Rs 30 is ‘under recovery’. Would anybody call this a ‘loss’? Why should people reeling under abnormal price rise foot the bill of this ‘under recovery’ to satiate greed of extra profit of the oil behemoths?
Pertinent to mention here that protagonists of GST had justified its introduction by talking of ‘‘one tax in one nation’’. But petrol-diesel were kept out of the ambit of GST. Had GST been imposed on petrol-diesel instead of excise duty and cess even at highest rate of 28%, a litre of petrol which costs around Rs 61. 32 including transport cost would have been Rs78.48. as against Rs 115. 12 (which includes central tax of Rs 27.90, state VAT of Rs 22.30 and dealer commission of Rs 3.80. (ABP 18-05-22)
Moreover, as the BJP-led central government is, allegedly, not providing the state governments their due share of GST proceeds, the state governments are also reluctant to switch to GST. And weirdly, the central government is squarely passing on the buck to the state governments for not reducing VAT or cess. And in this tug of war, the toiling masses are bleeding white.