Accounts of PSU oil companies under scrutiny

The finance ministry has ordered a scrutiny of the books of oil marketing companies to see if the under-recoveries stated by them are in order or not. The move was initiated at the behest of finance minister P Chidamabram, who asked his officers to look into the issue even before diesel prices were raised and a cap on subsidized cooking gas cylinders was announced last week.

The exercise — the third since 2008-09, when Chidambaram was finance minister — follows concerns raised by a section of the finance ministry over the losses reported by the petroleum players, which is linked to the trade parity price and the actual losses.

This time, some officers in the finance ministry are of the view that using a cost-plus method would be beneficial and may help the government cut down the subsidy burden. In fact, there were discussions with the petroleum ministry at the time of budget preparation but no breakthrough was achieved although North Block did manage to introduce some transparency by getting oil companies to disclose the price build up.

For instance, in 2008-09, the actual under-recovery was estimated at a little over Rs 1 lakh crore and so was the trade parity price, which assumes that 80% of the oil product is imported into the country, while the rest is locally produced. If an export parity regime was followed, which means the price oil companies would have received by exporting the produce instead of selling it in the country, the actual under-recoveries turned out to be a tad higher. Even the analysis for the first half of 2010-11 showed the similar results, an official said.

The issue has been reopened after Chidambaram's return to the finance ministry. On January 17, TOI had first reported that the finance ministry was examining the methodology for estimating the oil subsidy.

Oil companies, however, say that the situation is not going to change drastically. Even petroleum ministry officials pointed out that on earlier occasions, the analysis had showed that the pricing based on actual under-recoveries would have been in line with what was claimed by the oil marketing companies.

Officials also said that by moving to a cost-plus formula subsidy payment will get more complicated as the accounts would need to be checked and getting data is often not easy. In fact, in the past oil companies have refused to make the data public on the grounds that it was information that can be used by rivals.