WEDNESDAY, MAY 24, 2006

By Gyan Pathak

How much exploitation is too much? How much profiteering is too much? How much taxation is too much? How much 'loot' should public suffer silently if it is justified by law and executive orders of the government? There are many more questions that demand answers before any hike in the prices of petroleum products.

With the increasing prices of raw petroleum in the international market, which has been around $73 per barrel for the last few weeks and with the prospect of further price escalation, Government of India has been approached by the Public Sector oil companies for a hike in domestic prices on the ground that they will be losing over Rs 73,500 crore in the financial year 2006-07.

It is worth mentioning here that larger entities like American oil companies and government entities, China and India do not buy oil in the open market. They buy through long-term contractual agreements with country specific oil producers.

It has been reported that due to this practice, when market price touched $72 per barrel in April this year the cost for such greater entities averaged $28 per barrel.

According to a presentation made to the Government of India, the Public Sector companies, whose ownership rests on the government, asked for a hike of Rs 114.45 per cylinder in the case of cooking gas, Rs 9.33 per litre for petrol, Rs 10.43 per litre for diesel and Rs 17.16 per litre for kerosene oil to wipe out the under-recoveries.

Government officials and our leadership are trying to create a situation to make people believe that our Public Sector oil companies are heading towards heavy losses. Firstly, it is wrong because our Public Sector companies will be registering profit even without a price rise. Secondly, if we calculate overall gain to the government including profits of public sector oil companies, dividends income tax to the government from them, and collection from oil cess and other taxes including levies imposed by the Centre and the State governments, it would go well over Rs 2,000,000 crore, because collection on only two heads will be around this figure (Oil cess is estimated at Rs 60,000 crore and levies slapped by central and state governments are estimated at Rs 126,000 crore).

Let us look at the financial health of our Public Sector and private sector oil companies. Let us take the biggest private sector oil company, Reliance Industries, which is in refinery business. It registered a net annual profit of more than Rs 10,000 crore in 2005-06. The public sector company Oil and Natural Gas Corporation Limited (ONGC) boasts on the home page of its website that it has 'crossed the landmark of earning Net Profit exceeding Rs.10,000 crore, the first to do so among all Indian Corporates, and a remarkable Net Profit to Revenue ratio of 29.8 per cent. The growth in ONGC's profits is not solely due to deregulation in crude prices in India, as deregulation has affected all the oil companies, upstream as well as downstream, but it is only ONGC which has exhibited such a performance (of doubling turnover and profits), and has paid the highest-ever dividend in the Indian corporate history.' Net profit of ONGC in 2003- 04 was Rs 86640 million which rose to a record high at Rs 129830 million in 2004-05.

Take the example of another oil company, Indian Oil Corporation. Its turnover is increasing year by year. It was Rs 119,884 crore in 2002-03 that rose to Rs 150,677 in 2004-05. Its gross profit in 2004-05 was Rs 8,722 crore. In the first nine months of the fiscal 2005-06, the company registered a gross profit (after interest) of Rs 2764 crore. The net profit after tax and other deductions was Rs 889.66 crore.

As for Bharat Petroleum Corporation Limited (BPCL), it registered a net profit of Rs 9658 crore in the year ending on March 31, 2005. Unaudited figures for the year ending March 31, 2006 show that the company is going to have a net profit of Rs 1,298 crore.

Figures of all these companies reveal that no new or old project was hampered due to loss to these companies. They just want more and more profits so that the leadership can show how much they are efficient in their work and to show that they can make higher profits for their companies.

It should be kept in mind that during the last three years, the oil companies and the government of India resorted to price hike several times. The companies make us believe that they will be at a great loss and on this basis they got a hike in the prices of petroleum products.

This is simply 'loot' from the pockets of even the people who are stricken in poverty. It has a cascading effect on prices of all the commodities, which are going dearer day by day. Common people are not in a position to suffer this luxury of profiteering by government and the public sector oil companies. More so, because people know how our officials and leaders have been misusing the accumulated public money.

The government has always been trying to benefit from any oil price hike. The economics of the Government which sought to levy ad valorem higher customs and excise duties on oil whenever global prices rose, was an unhealthy, unethical practice. The price hike is not the only option to deal with the present situation of higher international oil price. There are alternatives which the Government and the oil companies are not ready to look at.