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The Ministry of Petroleum and Natural Gas has received a request from the Comptroller and Auditor General of India (CAG) to audit under-recoveries of oil marketing companies. "CAG has requested for auditing the under-recoveries of oil marketing companies (OMCs). We have told them they are most welcome to do so," an official of the ministry was reported, as saying. "It will be a performance audit," he added. Under-recoveries are revenue losses reported by state-run oil retailers on sale of diesel and cooking fuels. It involves public sector oil marketing companies like Indian Oil Corp (IOC), Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL) selling diesel, domestic cooking gas (LPG) and PDS kerosene at government controlled rates that are way below market price. The difference between the retail sale price and market rates is reported as under-recovery or revenue loss. Oil firms price fuel at Trade Parity Price, which is made up of 80 percent of the actual cost of import of fuel at a port, and the remaining 20 percent being the price realised if the fuel were to be exported. As per this formula, diesel is currently being sold at a loss of Rs.19.26 per litre, kerosene at Rs.34.34 a litre and a loss of Rs.347 is made on sale of every 14.2-kg LPG cylinder. At this price, the three firms would end the fiscal with a mind-boggling revenue loss of Rs.1,92,951 crore, of which the government would have to bear at least Rs.115,770 crore. In 2011-12, the government provided Rs.83,500 crore cash subsidy to meet over 60 percent of Rs.1,38,500 crore revenue loss. Upstream firms like ONGC chipped in with Rs.55,000 crore. "Considering the huge subsidy outgo, the CAG rightly wants to audit the way under-recoveries are calculated," the official said. The official said the three firms reported a combined revenue loss of Rs.47,811 crore on fuel sales in the first quarter. Of this, upstream firms like ONGC made good Rs.15,061 crore by way of discount of crude oil they sell to them. Oil firms would most likely post net losses even in the second quarter as the logjam in Parliament over coal block allocation has meant that supplementary demands for grants are not approved, and no subsidy payout is possible till the winter session of Parliament in November/December.

CAG may audit oil companies huge under recoveries