People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 23

June 15 , 2008


Ensure Fair Assessment Of  Actual Losses Of OMCs

CPI(M) MP Writes To PM

The following is the text of the letter written by CPI(M) MP and CITU secretary Tapan Sen to the prime minister Dr Manmohan Singh regarding the recent petro hike. A copy of the letter was also sent to the minister of petroleum & natural gas,  Murli Deorafor reference and necessary action.

This has reference to the constitution of a 'High Power Committee' by you on June 4, 2008 after the government's announcement of price-hike in petrol, diesel and LPG. Interestingly, one of the major terms of reference of the committee is to “revisit the concept of under-recoveries and examine the reported deficit and real deficit faced by the OMCs as a result of price-constraints imposed on them.”

The above term of reference makes it explicitly clear that the price rise has been decided without assessment of the actual deficit of the public sector oil companies and on the basis of a very grey area termed as 'under-recoveries' which needs to be 'revisited' or scrutinised.

I am fully aware of the need for ensuring reasonable, I repeat, reasonable profit to the OMCs. In fact in the process of our sustained struggle against attempts of privatisation of the public sector OMCs during the previous NDA regime, we always pressed for strengthening the OMCs both functionally and financially with appropriate policy-support.  But what strikes me, is the statement of the ministry of petroleum & natural gas (MoP&NG) which was echoed by you also in your address to the nation that these OMCs are facing under-recoveries of Rs 2,45,305 crore and in place of actual requirement of price-hike of Rs 21.43 per litre for petrol, the government has resorted to an increase of only Rs 5 per litre. Almost same has been indicated by the additional secretary of the MoP&NG on June 8, 2008, in a programme of a private TV channel, when he said that the entire under-recoveries can be made up if petrol is priced at Rs 71 per litre at present level of crude price at US$130 per barrel.

As per lay-man's calculation, Rs 71 per litre for petrol is equivalent to US$256 per barrel. As you are well aware, the cost of crude comprises 93 to 94 per cent of the cost of the finished product viz., petrol, diesel etc. The figure of 126 (256 minus 130) dollar per barrel as conversion cost of refining crude to petroleum product appears to be fictitious and totally absurd, specially in India, which is self-sufficient in respect of refining, having refineries to produce 148 million MT per annum with refining cost per litre benchmarked and widely known for years.

I am sure, the absurdity and totally speculative nature of such product costing has prompted you to form a committee to find out the real mystery behind the figures euphemistically designated as 'under-recoveries' in the official circles and “losses” for public consumption.

In the fitness of things, and for the sake of fair and objective assessment of actual losses of OMCs and the undefined speculative figures of 'under-recoveries', by the aforesaid committee, I urge upon you to please withdraw the price-rise of petrol, diesel and LPG and reassess the situation in the light of duty/tax reductions already made by the central and many of the state governments.