NEW DELHI: Independent directors are increasingly asking the boards of state oil companies why they have not raised petrol prices for months to cut losses even though the Cabinet has granted them the freedom to price the fuel.
Top executives at Indian Oil, Bharat Petroleum Corp and Hindustan Petroleum Corp told ET that independent directors were regularly asking ‘uncomfortable questions’ about their decision to sell petrol below market price.
An independent director on the board of a state-run oil marketing company confirmed the issue had been raised. “Yes, we are taking the view that there should not be any loss-making transaction,” said the director, who requested anonymity.
Independent directors of state companies have usually not opposed decisions taken under government pressure, but last week Coal India’s board faced an unprecedented situation. Its independent directors stoutly resisted a directive from Pulok Chatterji, principal secretary to the PM, who had asked the state monopoly to sign fuel supply agreements with private power companies despite uncertainty over supplies.
Top executives at oil companies said there had been no conflict with independent directors so far.
But executives at oil companies said the pressure was mounting. Petrol prices need to be raised by about Rs 9 per litre to bring them on par with international rates.
But before raising prices, state companies always informally seek the oil ministry’s permission, which has not been granted since December because of assembly elections and fear of objections from allies such as Mamata Banerjee.
Given the severe strain on their finances, oil companies need to raise petrol prices immediately, executives said. The three companies reported a combined net loss of about Rs 15,000 crore in the first three quarters of 2011-12. “We can’t wait any longer. We have to take a decision in a day or two,” the chairman of an oil firm said, requesting anonymity.
“We will find it very difficult to explain our pricing decision to independent directors. They have already raised many questions. They say that we should at least raise the price of petrol, which is a deregulated fuel,” the chairman said.
The chairman of another state oil company said it was difficult for them to convince independent directors why petrol prices have been frozen since December. Oil companies were ready to raise petrol prices on March 31. “Essential personnel were called on Sunday expecting a hike, but it could not be done due to political reasons,” said an oil company executive directly involved in fuel pricing.
The UPA government is apprehensive that a petrol price hike would trigger stiff protests from allies, especially the Trinamool Congress, which could make passage of the Finance Bill difficult. The government would fall if a money bill fails in Parliament, officials said.
Oil companies are not willing to wait over a month to get the Finance Bill passed. IOC Chairman RS Butola said companies were suffering a daily revenue loss of Rs 48 crore on the sale of petrol. Either companies should be allowed to raise petrol prices or the government should reduce excise duty on the fuel, he said.
“Companies have written to the government to reverse the petrol decontrol decision and give them subsidy on revenue losses. We can’t sustain losses for long,” Butola told ET. India imports 80% of its crude oil requirements.
“We last revised petrol prices when crude oil was at $109 per barrel. Today, we are buying crude at $121.5 per barrel,” Butola said. Companies have not revised petrol prices since December 2011 because of assembly elections in five states and the Budget session of Parliament, which is in recess for three weeks.
Companies want to pass on full market rates to consumers. They are selling petrol at Rs 7.67 per litre less than market rates exclusive of taxes. If petrol prices were paired with market rates, along with local levies it would be costlier by Rs 9.20 per litre in New Delhi.
But oil ministry officials say the government would not allow such a steep hike at a time prices of food items and vegetables are soaring. They expect its price to go up by a maximum of Rs 5 per litre.