With rupee falling to all-time low, benefits accuring from fuel pricing reforms initiated earlier this year have all been wiped out and losses on diesel and cooking fuel are estimated to climb to Rs 158,000 crore.
The government in January decided to raise diesel prices in small dozes of 40-50 paisa a litre every month till such time that losses on the fuel are wiped out. Regular hikes in fact brought down the losses on diesel to just Rs 2.62 from Rs 8.64 per litre.
But with rupee dropping below 60 to a US dollar, losses on diesel have climbed to Rs 7.10, industry sources said.
Indian Oil, Bharat Petroleum and Hindustan Petroleum had at the beginning of the fiscal estimated Rs 80,000 crore revenue loss on selling diesel, cooking gas (LPG) and kerosene at government controlled rates.
Assuming a crude price to be USD 105 per barrel and exchange rate of Rs 60 to a US dollar, the under recovery or revenue loss is expected to be Rs 1,58,102 crore, they said.
In 2012-13, oil firms lost Rs 1,61,029 crore in revenues at an average crude price of USD 107.07 per barrel and an exchange rate of Rs 54.45 to USD.
Of the current year revenue loss estimate, Rs 82,728 crore is on account of diesel, Rs 30,810 crore on account of kerosene and Rs 44,563 crore on LPG.
Sources said every one rupee depreciation against the US dollar increases annual revenue loss by a Rs 9,000 crore while an increase of USD 1 a barrel in international crude oil price leads to annual rise in under recoveries by Rs 4,300 crore.
Moody's Investors Service in a research note said rupee has depreciated by 11.8 per cent since the beginning of the fiscal year in April and reached an all-time low of 60.73 against the US dollar on June 26.
"This has negated most of the benefits for the government’s budget and the oil marketing companies from the decline in fuel subsidies in view of price reforms started in September 2012 -- and from a near 8 per cent retreat in crude oil prices on a USD basis."
Since September 2012, the government has announced various reforms, including allowing oil marketing companies to increase diesel prices by 50 paisa per liter per month, withdrawing the subsidy on diesel sold in bulk (about 16 per cent of the total volume of diesel sold), and limiting the amount of LPG sold at subsidised rates.
The fall in international crude oil prices from an average of USD 108 per barrel for 2012-13 to USD 101 per barrel in May had also helped reduce subsidies, it said.
"If the rupee continues to depreciate and averages 62 against the USD and crude prices increase to average USD 108 per barrel for 2013-14, subsidies could return to Rs 160,000 crore, a level similar to 2012-13. Furthermore, in the absence of any further diesel price hikes, fuel subsidies would increase an additional Rs 15,100 crore," Moody's said.