A depreciation in the value of the rupee against the dollar, coupled with surging crude oil prices, are likely to push the country's crude oil import bill to over $100 billion in 2008-09, from $77.02 billion in 2007-08, according to industry officials.
In 2007-08, the bill rose nearly 40 per cent from $54.99 billion in 2006-07 as crude oil imports, including those by private sector refiners such as Reliance Industries and Essar Oil, rose 9.1 per cent to 121.67 million tonnes (mt). In 2008-09, imports are likely to be over 134 mt.
Along with rising demand, the depreciation of the rupee is also likely to inflate the import bill. Since May 1, the Indian currency has depreciated by nearly 6 per cent. A falling rupee increases the cost of imports.
The country imports around 78 per cent of its crude oil requirements. This is set to go up to 85 per cent in the next three years considering the nearly 10 per cent increase in demand for crude oil every year and almost stagnant supply from domestic oil fields.
An official with Indian Oil Corporation (IOC), the largest retailer of petroleum products, said every Re 1 depreciation of the Indian currency against the dollar raises the company's crude oil import bill by Rs 3,000 crore (Rs billion).
Every 1 per cent depreciation in the value of the rupee increases the under-recoveries of oil marketing companies by 80 paise per litre, says a top official with Bharat Petroleum Corporation (BPCL), the country's second-largest crude oil refiner. This translates into around Rs 20,000 crore (Rs 200 billion) higher under-recoveries annually, the official adds.
At current crude oil price of around $120 per barrel, three public sector oil marketing companies -- IOC, BPCL and Hindustan Petroleum Corporation (HPCL) -- are projected to report under-recoveries of around Rs 1,80,000 crore (Rs 1,800 billion). The depreciation of the rupee could increase this to Rs 2,00,000 crore (Rs 2,000 billion).
Under-recovery is the difference between the market price and the retail price. These three companies sell petrol, diesel, cooking gas and kerosene at subsidised prices. These products constitute around 70 per cent of their sales.
The value of the rupee had appreciated to around 39 against the dollar in 2007-08 from around 45. This had reduced the cost of importing crude oil (the companies pay for crude oil in dollars) as the companies had to pay less for every dollar.
Crude oil import prices have risen 57 per cent from around $92 per barrel in January this year to around $120. The high prices have increased the demand for dollars, which in turn has increased the value of the dollar against the rupee.
"It's a worsening situation. Rising crude oil prices are putting pressure on our balance sheet as we cannot increase retail prices. Moreover, because of rising prices, the value of the rupee has fallen against the dollar, which was a big positive for us last year," said the IOC official.
