The great Indian oil trick: under-recoveries overstated 15%

The under-realisation on fuel sales reported by the country's oil companies is overstated by as much as 15 per cent, according to experts, though this does not mean that the oil companies are making profits on selling subsidised petrol, diesel, cooking gas and kerosene.

"A part of the under-recovery calculations is notional. It does not actually exist," said a Delhi-based analyst, who advises the country's oil companies.

OVERSTATED UNDER-REALISATION

# Oil companies say calculations based on pre-defined government formula
# Calculation assumes import cost of petrol, diesel, LPG and Kerosene
# Imports of petrol & diesel are negligible
# Govt pruned Rs 78,000 cr under-realisation claim of oil companies to Rs 70,000 cr last year
The optimum or "desired" selling price is calculated assuming that the fuel is imported and then processed, transported and marketed when in fact imports accounted for 3 per cent of petrol consumption, 6 per cent of diesel consumption and a quarter of cooking gas and kerosene consumption.

The oil marketing companies calculate the under-realisation of fuel sales by taking the difference between the market price of the fuel and the subsidised selling prices. The market price is benchmarked to the price of the fuel on the Singapore exchange to which expenses such as freight, insurance and customs duty are added.

Refinery margins and processing charges are then added to this to make up what is called the refinery gate price, which is the price at which the refinery sells the fuels to the oil marketers.

The refinery gate price is calculated only for the four subsidised fuels irrespective of whether they are imported or not.

The oil marketers then add transportation charges, marketing margins and dealers' commissions to the refinery gate price to arrive at the desired selling price of the fuel.