Indian oil wants petrol price hiked again to meet under-recovery

RS Butola, chairman of India’s largest oil company Indian Oil has suggested an increase of Rs 1.35 per litre of petrol to ensure proper profit margins for the oil companies.

Speaking at a energy event, Butola said that the state-owned oil companies, which increased petrol prices by Rs 5 per litre two weeks ago, said another increase is needed if the petroleum refining and retailing companies are not to suffer.

“The desired increase is Rs 1.35 [per litre,]” he pointed out.

Under India’s energy policy, the oil refining and distribution companies such as Indian Oil and Bharat Petroleum are free to price auto-fuels as they want, but are not in fact free to do so.

As a result, as the crude prices rise in international markets, the cost of acquiring crude and producing petrol and diesel rises above the price at which the fuels are sold in the country. The companies then calculate the cost of producing petrol and diesel and add a “desired margin” of profit to the cost and arrive at a desired price level. The difference between this desired price and the actual price, called under-recovery, is calculated at a per-litre basis.

It is expected that the government will allow its oil companies — who account for around 90% of the total market — to raise diesel, gas and even petrol prices again.

The companies have increased the price of petrol 11 times in 11 months — a total of around 35%-40% over the last one year.