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Murali Gopalan

Mumbai, Dec. 24 Despite crude prices falling to $35 per barrel, the Big Three public sector oil refiners are fortifying themselves for another round of net losses in the third quarter of this fiscal.

Indian Oil (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) had reported combined second quarter losses of Rs 12,890 crore. For the first half (April-September), the net losses totalled Rs 14,431 crore, with IOC’s the highest at Rs 6,632 crore, followed by HPCL (Rs 4,107 crore) and BPCL (Rs 3,692 crore).

“We expect the October-December results to be as bad or even worse largely because of huge losses incurred on carrying crude stocks bought at levels of nearly $100 per barrel and being depleted gradually. We expect them to be out of the systems by end-January,” top sources told Business Line.

The irony, they add, is that falling crude prices are actually becoming a “massive burden” for the three oil majors because they immediately translate into higher inventory baggage. What is also emerging as a harsh reality is that any respite in the fourth quarter will not be enough to set off the losses for the first nine months. “We are bracing ourselves for annual net losses for 2008-09 which will be a first of sorts for IOC, HPCL and BPCL,” a top executive of an oil company said.

The Centre has done its bit in the past with upward price revisions in the first half (when the situation had gone out of control) as well as issue of oil bonds. Despite that, there is still a substantial portion of the under-recoveries (losses incurred on sale of petrol, diesel, LPG and kerosene) which has not been compensated and is tipped to be over Rs 10,000 crore. In addition, the annual interest on their bank borrowings is already close to Rs 15,000 crore.

As for the oil bonds, executives say they are going to be saddled with these instruments for another year at least. Thus far, the Centre has issued nearly Rs 45,000 crore of these bonds as part-compensation of losses incurred between January and September. The final tranche of Rs 20,000 crore is due in end-January.

The silver lining is that the oil majors have been dealing with the RBI directly for sale of these bonds against crude purchases. “We are just keeping our fingers crossed that this arrangement continues because if it means going back to the open market, the bonds will be discounted and we will lose out as a result,” sources said.

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